A fresh new week and still the rate has followed through with last week’s losses, almost pushing the rate all the way down to its lowest level seen since November 2020. This comes as the Dollar continues to mount pressure on the Pound as it siphons strength from a positive outlook on the financial side of their economy by investors. The main factors of this being the expectation of a very hawkish approach by the Federal Reserve in relation to interest rate hikes coupled with an uptick in U.S. bond yields. Rate hikes are something that the Dollar has benefitted from previously this year, and with markets pricing in additional hikes by the Fed, this upwards trend by the Buck will likely continue. St. Louis Fed President James Bullard, who is on the hawkish side of the debate, stated late last week that the central bank needs to raise the federal funds rate by another 3 percentage points by year’s end, providing additional support to the currency. As for the Pound, it still finds itself struggling to find a foothold in the market against the Dollar. Earlier this morning an important set of data relating to the UK’s GDP failed to provide much support, with the figures released failing to exceed consensus. It is likely that this downwards trend will continue for some time, with the rate falling deeply with this current decline.
Last week the rate shot up to monthly highs after the Pound gained some plump momentum against the Euro, but these gains were short lived and have since been mostly lost. As it currently stands this week, the Euro is trying to claw back some of its losses and is being fueled by the current French presidential election. Originally this election and its uncertainty acted as a headwind for the Euro, however, Emmanuel Macron’s clear lead in the first round proved to be supportive for the currency. This momentum by the Euro has so far left the Pound behind, with the rate dropping quite significantly so far today. On the flip side, there will be plenty of opportunities this week for the Pound to fight back, provided the array of data releases forecasted please investors. Most importantly, a report on inflation is to be expected from the UK on Wednesday, which will likely have a slight influence on the Bank of England’s approach to interest rate hikes. Until then the markets will have some other data releases to digest and will also focus on any developments that may occur in Ukraine.
Published by Frank Brightman (11/04/2022)