The US dollar traded in a wide range yesterday, initially stumbling amid Omicron fears, before rallying sharply after Federal Reserve Chair Jerome Powell’s tapering comments.
Sterling is off to a weak start so far this morning, with GBP/EUR muted at €1.1842 and GBP/USD dipping to $1.3771. GBP/CAD is subdued at C$1.7010, while GBP/AUD and GBP/NZD retreat to AU$1.8413 and NZ$1.9222 respectively.
Looking ahead, an unexpected slowing of UK inflation is likely to drag on GBP exchange rates through today’s session.
What’s been happening?The pound struck higher during yesterday’s European session as expectations for an imminent rate hike from the Bank of England, continued to act as a tailwind for the currency.
This comes as GBP investors are increasingly pricing in a BoE rate hike in November, followed by the potential for a series of hikes through 2022.
At the same time, the US dollar was placed on the defensive on Tuesday as a prevailing risk-on environment saw investors shun the safe-haven currency.
Data showing a surprise fall in new housing starts and plunge in building permits in the US last month, also contributed to the pressure on the ‘greenback’.
This pullback in the US dollar helped to bolster the appeal of the euro yesterday, thanks to the strong negative correlation between the pairing.
However the single currency’s gains were tempered somewhat by comments from a European Central Bank (ECB) policymaker, who reiterated the bank’s stance that the recent spike in inflation is transitory.
What’s coming up?Kicking off today’s session was the publication of the UK’s consumer price index.
September’s CPI release reported a surprise slowing of domestic inflation, which has prompted a modest dip in the pound this morning, as it sees GBP investors revise their BoE rate hike expectations.
The Eurozone will also publish its finalised inflation figures for September a little later this afternoon. While this is expected to confirm inflation in the bloc climbed to its highest levels since 2008, it’s unlikely to provide much support to the euro given the ECB’s current dovish stance.
Meanwhile, the absence of any notable US economic releases could see the US dollar remain primarily driven by market sentiment, potentially leaving the currency vulnerable to additional losses if the mood remains broadly upbeat.
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)