So far into trading this week, it is apparent that the Sterling-Dollar has finally taken some time to breathe. This came following the volatility seen in the market last week, predominantly bought on by interest rate decisions from both sides of the table. In this both central banks announced an interest decision in a bid to tackle record-breaking inflationary levels. The Federal Reserve opted for a 0.75% hike, their largest since 1994, which provided a plump boost for the Buck. The Bank of England, on the other hand, chose a 0.25% rate hike which underwhelmed investors and provided little support to the Pound. It is what came after this that supported the Pound, the BoE stated they would be prepared to ‘act forcefully’ if inflation reaches forecasts of 11%. This, of course, prompted investors to buy into the Pound due to this prospect of additional more aggressive rate hikes. Looking back to today, it is rather quiet for both the Pound and Dollar regarding data. This means that trading for today will mainly be influenced by overall market sentiment. However, this Wednesday an important release on the UK’s inflationary levels will be available. This is expected to have a very notable impact on the Pound as this data will help clarify what course of action the BoE will take regarding interest rate hikes.
Last week it was clear that there was lots of volatility around the rate, with the pair briefly falling all the way to its lowest level since February 2021. Since then, the rate has managed to recover slightly as the Pound benefitted from comments from the Bank of England following their interest rate decision. The BoE stated they would ‘act forcefully’ to bring inflation under control, prompting forecasts of a future 0.5% hike at their next meeting, strengthening the Pound. Looking back at today, the rate has already begun to dip slightly into a decline as the Pound struggles to support its gains. The Euro also finds itself on the backfoot as it still struggles from the recent European Central Bank decision in which they failed to announce a rate hike. For trading today it is unlikely that the rate will see much movement due to the absence of data from both sides. It is therefore likely that the rate will predominantly be influenced by overall market sentiment. Markets will however pay close attention to an inflationary data release from the UK on Wednesday.
Morning Update published by Frank Brightman (20/06/2022)