Empire state building Equals Money market report

Central bank members dictating FX moves

Thanim Islam
Thanim Islam 21 April 2022

GBP: Quiet session for the pound

EUR: Potential for July rate hike

USD: Fed member cautious about raising rates

Sterling 

The usual rhetoric on the pound, where the currency continues to take a backseat to other market themes.

BoE governor Bailey will be speaking today as will BoE member Mann with the highlights for the whole week being tomorrow's retail sales, manufacturing and services PMI’s.

Euro

No big surprises emerged from the election debate last night and as a result there was minimal impact of the debate on euro rates. Initial polls from the debate showed that 59% of polled found Macron more convincing than Le Pen. As a result, expectations in the market are for a Macron victory going into Sundays second round vote.

Of bigger influence on the euro was the hawkish comments from ECB’s Kazaks who said a rate rise in July could be possible, which caused the euro to pare some of the losses realised following last week's ECB meeting. To follow on ECB’s Wunch commented this morning that interest rates could turn positive this year. The ECB’s consensus view is for rates to start rising sometime after September.

As a result the euro has gained 0.85% versus the US dollar since yesterday morning and 0.43% against the pound.

Today expect eurozone consumer confidence to drop to -20 in April from -18.7 in March and we also have ECB president Lagarde speaking in the evening. 

Expect the euro to be supported with Macron expected to win on Sunday and the hawkish comments by ECB members Wunch and Kazaks.

USD

The dollar has continued yesterday's decline into the early hours of today’s trading. Fed members Evans and Daly both came out with comments stating that rates will be neutral by year end suggesting rate hikes to 2.5% by year end. Neutral dictates that the rate at which the economy is running on its own with interest rates that aren’t boosting or restricting growth.

However what seems to be the key reason for the dollar weakness was Fed Bostic expressing a caution about the pace of interest rate hikes and the impact on the economy. He backed the view that neutral rates could be between 2% and 2.5% but also stated the rate could be as low as 1.75% by the end of the year.

Fed Chair Powell will be speaking in the afternoon and we have the usual weekly initial jobless claims in the afternoon. But for now the dollar is on the backfoot showing the sensitivity to Fed member comments on the rate hike expectations.

Market rates 

Today's Interbank Rates at 08:57am against sterling movement vs yesterday.

Euro

€1.195

US dollar

$1.307 

Australian dollar

$1.754 - 

South African rand 

R19.81

Japanese yen 

¥167.3 -

Have a great day.