GBP/USD
Last week we saw the rate catapult down to its lowest levels since July 2020 following an intense sell-off initiated by poor economic reports from the UK. As it currently stands, the rate is still sitting in this crater, with the Pound struggling to deal with strong headwinds imposed by the Dollar’s strength. Looking back on last month, Sterling had its worst performance in over 5 years and with doubt still being casted on the currency, fears are lingering of potential for another poor month performance wise. To add to this concern, this week is when both the Bank of England and Federal Reserve are expected to announce their interest rate decisions this week, leaving potential for the Pound to drop even further. This concern is mainly down to the prospect of the BoE briefly pausing any rate hikes as a response to the UK’s weak economic growth recently and the cost-of-living crisis. The Fed on the other hand is under intense pressure to raise interest rates, with the market heavily anticipating these rate hikes. Adding to these expectations, Fed chair Jerome Powell signaled that a 0.5% rate hike is ‘on the table’ when speaking last week. For trading today, the rate is unlikely to make any significant movement, with it likely waiting in anticipation for these announcements.
GBP/EUR
Over the course of the last 2 weeks the rate has experienced heightened volatility, with it falling quite significantly and now bouncing around in its current regions in an attempt to claw back some lost ground. At this point in time the rates volatility is predominantly down to conflicted views regarding the Bank of England’s interest rate hikes that are due on Thursday. Many investors are questioning the banks approach and expect them to strike a more hawkish tone in an attempt to let the cost of living crisis settle down before any significant hikes. Should this be the case there is danger that this will adversely affect the Pound, pushing it down to exceed the recent lows experienced. As for the Euro, it is also facing difficulties of its own as the conflict in eastern Europe grinds on with no end in sight. The ever deteriorating relations between Moscow and Brussels hints at prolonged downwards pressure on the Euro as the effects of the war are being felt strongly in many European economies. For the time being, the rate will likely remain in its current regions before the BoE’s interest rate decision that is due on Thursday.
Published by Frank Brightman (03/05/2022)