GBP/USD
A new day and still the rate continues its recent downwards trend, with the pair already printing a decline at the time of writing, but for now the losses are minimal. The current unresponsiveness in the market is likely down to investors anticipating what is expected to come later on today. This being the much-awaited interest rate decision by the American central bank, the Federal Reserve. As it currently stands, markets and analysts are forecasting an interest rate hike of 0.5% by the Fed whilst also heavily pricing this scenario into the market, giving the Dollar the additional strength that we have seen lately. Taking this into account, the act of them actually raising interest rates in accordance with expectations may not provide the Dollar that much of a boost due to the act of this having been priced into the rate. On the contrary, any surprisingly hawkish announcements will likely be greeted by lots of buying attention for the Dollar. Looking at the Pound, it is likely that it will be slightly vulnerable today due to the lack of data until tomorrow’s interest rate decision by the BoE. Currently, markets are conflicted in their outlook of the BoE’s rate hike meaning the period before this decision may be particularly volatile.
GBP/EUR
The volatility continues in the pair, following yesterday’s indecisiveness in which the rate jumped up quite significantly before collapsing towards the end of the trading session. This comes as both currencies involved are facing difficulties of their own, resulting in conflicting powers acting on the rate. The Pound’s recent struggles are mainly down to the current cost of living crisis strangling the outlook for the UK economy, facilitating the Euro’s recent advance against it. With the BoE’s interest rate decision coming up tomorrow, it is clear that the Pound is not finding that much support as investors are still divided over what approach will be chosen by the bank. However, the probability of a larger than expected interest rate hike by the BoE has recently risen to 30%. As for the Euro, it has suffered slightly in recent days as German data has failed to impress investors, with the bulk of the data coming in under consensus. Additionally, the Euro is still being weighed on by the conflict between Russia and Ukraine, with the EU now looking to ban Russian oil imports by year’s end. Should this be the case, the Euro may have to deal with prolonged headwinds as this ban will likely have intense implications on some European economies.
Published by Frank Brightman (04/05/2022)