The pound collapsed on Friday as markets were rattled by the contents of UK Chancellor Kwasi Kwarteng’s mini-budget.
Sterling looks to be extending these losses this morning, with GBP/EUR dipping to €1.1721 and GBP/USD tumbling to $1.2295. GBP/CAD has retreated to C$1.5808 while GBP/AUD and GBP/NZD hold steady at AU$1.7396 and NZ$1.9207, respectively.
In the spotlight today will be the latest US nonfarm payroll release. Will another robust expansion of employment growth help to bolster the US dollar?
What’s been happening?The pound nosedived yesterday as the Bank of England spooked GBP investors with its latest economic forecasts.
Predictions from the bank that inflation could reach 10% before the end of the year, in addition to a warning that fourth quarter growth could contract up to 1%, sparked recession fears and prompted a dramatic Sterling selloff.
This plunge in GBP exchange rates came despite a hawkish split in the Monetary Policy Committee which saw 3 of the 9 members vote for a 0.5% hike, versus the 0.25% increase backed by the majority of policymakers.
Meanwhile, a gloomy market mood saw investor favour safe-haven assets on Thursday, resulting in the US dollar pushing higher against the majority of its peers.
Its negative correlation with the US dollar resulted in the euro weakening yesterday, with these losses being reinforced by data showing an alarming slump in German factory orders in March.
What’s coming up?The publication of the latest US nonfarm payrolls will likely act as the main catalyst of movement in the currency market today.
Economists are forecasting the US economy will have added another 400,000 jobs in April, with the robust increase in job growth likely to reflect positively on the US dollar as it will support more, aggressive interest rate hikes from the Federal Reserve.
In the meantime, more underwhelming data from Germany could push the euro lower again today, after industrial production contracted more than expected in March.
Meanwhile, the pound could struggle to attract support today as GBP investors are left to digest the BoE’s bleak economic outlook.
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)