GBP: Staging a recovery
EUR: Euro calming down
USD: Powell dents dollar optimism
Sterling is staging a minor recovery today with hopes that PM Johnson may be able to announce a further relaxation of conditions and travel restrictions as early as next Monday.
The pound also has preliminary sentiment numbers from the UK’s manufacturing and services sectors due this morning which should be able to continue sterling’s run higher on stronger jobs data and increased price pressures.
We must be cautious of too much sterling strength ahead of the Bank of England meeting tomorrow in case of a change in tone on the recovery.
With a quieter dollar, we have a quieter euro as a result. Sentiment indices from Europe should allow for a continuation of the recovery narrative although the euro is not likely to stage a huge comeback.
Yesterday’s commentary from Fed Chair Powell served to take the sting out of the tail of recent dollar moves, reinforcing the belief that the Federal Reserve is still a way off tightening interest rates or reducing the amount of stimulus that it is making available on a monthly basis.
The key consideration for the US central bank remains unemployment and jobs/wage numbers. With rate-setters in the US continuing to emphasise that inflation is transitory then it will be an improvement in the jobs market in the US that drives expectations of higher interest rates and, subsequently, a stronger USD.
For now, we expect the weakening trend for the USD to continue with currencies that are ahead of the US in the hiking cycle to win out. We therefore see gains for GBP, NOK, RUB, CAD and NZD in the coming months.
Alongside the pick-up in risk assets and the sell off in the USD yesterday, haven currencies such as the Swiss franc and the yen have slackened overnight. If market conversations around a tightening of financial conditions in the US fail to materialise then we can see this trend continuing through the summer.
Today’s interbank rates at 08:22 against sterling. Movement vs yesterday.
|US dollar||$1.397 ↑|
|Australian dollar||$1.849 ↑|
|South African rand||R19.85 ↑|
|Japanese yen||¥154.9 ↑|
Have a great day.