The rate is currently on the brink of exceeding the lows we saw recently and falling down into levels that we have not seen since November 2020. This comes as the Dollar’s strength has proven to be too much for the Pound, with it outperforming not only Sterling but the majority of its peers. This recent outperformance by the Buck is predominantly down to two factors, its safe haven status, and their Federal Reserve. The conflict in Ukraine meant that investors were eager to limit their risk by investing into the Dollar and given the recent downturn in sentiment following the events in Bucha, the Greenback found itself once again in the spotlight. Also, a key driver in the Dollar’s strength yesterday was hawkish comments from the Federal Reserve’s Lael Brainard about the prospect of starting quantitative tightening “at a rapid pace” at the May meeting. This statement was good news for the Dollar as it meant that the market could reinforce its expectations of rate hikes, providing momentum for the Greenback. As for the Pound, its recent absence of market moving data has left it particularly vulnerable, and with no important data scheduled for the rest of the week the Dollar may find room to extend its gains.
So far this week the Pound has soared against the Euro, finding enough momentum to climb out of the dip that it recently experienced. This current 3-day upwards trend has been facilitated by a dent in overall market sentiment to the Euro following the emergence of evidence of atrocities committed by Russian troops in areas previously occupied around Kyiv. It is also speculated that the EU is drawing up fresh sanctions on Russia in response to these allegations, adding to the downwards pressure on the currency as these could have repercussions on some of the European economies. Looking at the Pound, although these gains have been very promising it is likely that they have been slightly capped as the markets are slightly uncertain about the outlook of the UK economy. This comes as the current cost of living crisis is still very prevalent and inflation levels at eye watering levels, causing the BoE to peel back the expectations of interest rate hikes. As for the rest of the day, the rate is likely to remain predominantly influenced by any developments that come out of Ukraine due to the lack of data from both the UK and EU today.
Published by Frank Brightman (06/04/2022)