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GBP/USD plunges to $1.33 as Hawkish Fed spooks markets

currency-newsGBP/USD plunges to $1.33 as Hawkish Fed spooks markets
The US dollar maintained a positive trajectory yesterday, with the currency continuing to draw support from the Federal Reserve’s hawkish guidance on Wednesday.

Meanwhile, the pound is mostly rangebound so far this morning, with GBP/EUR flat at €1.2026 and GBP/USD stable at $1.3394. GBP/CAD is holding steady at C$1.7065, while GBP/AUD and GBP/NZD tick up to AU$1.9077 and NZ$2.0386, respectively.

In the spotlight today will be Germany’s latest GDP figures. Will a contraction of growth in the fourth quarter drive the euro lower?

What’s been happening?

The US dollar continued to punch higher on Thursday, with investors flocking to the safe-haven currency as markets were rattled by Fed Chair Jerome Powell’s hawkish comments which followed the US central bank’s interest rate decision on Wednesday.

Reinforcing the upside in USD exchange rates was the publication of the latest US GDP figures, which reported the US economy grew much faster than expected in the last quarter of 2021.

The continued strength of the US dollar left the euro on the back foot yesterday, with the negative correlation between the pairing offsetting a surprise improvement in Germany’s latest consumer confidence index.

At the same time, the pound continued to struggle to find any strong directional bias on Thursday ahead of the publication of the inquiry into the Downing Street ‘partygate’ scandal.

What’s coming up?

Looking ahead, the publication of Germany’s fourth quarter GDP figures will no doubt be the primary focus for investors today.

Their release could see the euro face an uphill battle this morning, amidst forecasts growth in the Eurozone’s largest economy will have contracted at the end of 2021.

EUR exchange rates may also come under pressure with the subsequent release of the Eurozone economic sentiment index, which is expected to have deteriorated this month.

For USD investors the spotlight will be the latest PCE price index, with the Fed’s preferred indicator for inflation forecast to have risen again last month, potentially extending the upside momentum in the US dollar.

Finally, we could see the pound remain paralysed today as GBP investors continue to patiently await the publication of the Sue Gray report.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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