EM market report

Dollar strength here to stay as sterling suffers

Thanim Islam
Thanim Islam 09 May 2022

GBP: Sterling suffers once again

EUR: Closer to energy embargo

USD: Will lower inflation weaken the dollar?

Sterling 

Sterling continued its losing battle with the US dollar on Friday as markets continued to digest the Bank of England cautious rate meeting from Thursday, betting that the bank won't reach the year-end target rate as previously predicted.

Risk aversion in markets also seems to have underpinned sterling moves with recent falls in equity markets mirroring what sterling has been doing.

With the Bank of England seemingly becoming more concerned about economic growth, first quarter economic growth readings on Thursday will be in focus, with quarter-on-quarter growth expected to decline to 1%.

Also, today we have BoE member Saunders, a hawk, speaking at 2pm.

For the time being, a combination of concerns over economic growth, expectations that interest rates won't rise as much as previously expected, global risk sentiment dropping, and negative Brexit headlines all seem to be weighing on the pound.

Euro 

The euro's performance remains steady despite concerns over energy supplies between the EU and Russia. The G7 has committed to a Russian energy embargo as soon as possible and with the US now sanctioning several executives at Gazprombank, key for energy payments to Russia from Europe, it seems we are getting closer to a full energy embargo.

More chatter in the markets about a rate hike in July to tackle rising inflation seems to be giving the currency some support with GBPEUR rates now at the lowest since December 2021.

This week we have German inflation figures out on Wednesday expected to remain at 7.8% as well as several ECB members speaking throughout the course of the week, so listen out for more talk of a July rate hike being backed.

USD 

The dollar remains the king following an encouraging jobs report on Friday. 428,000 new jobs were added, unemployment held steady at 3.6% and wages grew by 5.5%.

In a market with rising inflation and, a resilient US economy and the appeal of the US dollar as a hedge in a risk averse market with the war in Ukraine and slowdown fears in China, this US dollar strength is here to stay.

US inflation figures are out on Wednesday with an expectation of core inflation dropping to 6% in April, down from 6.5% in March. We also have several Fed speakers throughout the course of the week.

Market rates 

Today's Interbank Rates at 09:09am against sterling movement vs Friday.

Euro

€1.168 ↓

US dollar

$1.228 ↓

Australian dollar

$1.752 ↑

South African rand 

R19.86 ↑

Japanese yen 

¥161.1 ↑

Have a great day.