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Pound retreats on cost-of-living concerns

currency-newsPound retreats on cost-of-living concerns
The pound was placed on the defensive on Monday, undermined by concerns over the UK’s cost-of-living crisis and its impact on the country’s economic recovery.

Meanwhile, trade in Sterling is mixed again this morning, with GBP/EUR climbing to €1.1863 and GBP/USD muted at $1.3530. GBP/CAD is stable at C$1.7168, while GBP/AUD and GBP/NZD hold steady at AU$1.8981 and NZ$2.0371, respectively.

Looking ahead, the lack of any high-impact data releases today could limit volatility in the currency market.

What’s been happening?

The pound got off to a poor start this week, with the currency stumbling amidst growing concern over the UK’s impending cost-of-living crisis.

Analysts fear this will hurt economic growth this year, with EY Item Club revising its UK GDP forecast down from 5.6% to 4.9% on the expectation consumer spending will be suppressed through 2022.

The US dollar, also struggled to attract support on Monday, with investors shunning the safe-haven currency amidst a prevailing risk-on mood.

At the same time, the euro traded sideways during yesterday’s session, following European Central Bank (ECB) President Christine Lagarde’s testimony before EU parliament.

Lagarde said the ECB continues to see some risks to the economic outlook and that inflation will subside later in the year but remain above the bank’s 2% target by the end of the year.

What’s coming up?

Turning to today’s session, in the absence of any notable economic data, we might see geopolitics act as the main catalyst of movement in the currency market.

In the UK this could see the furore over the Downing Street ‘partygate’ scandal act as a key headwind for the pound.

Reports suggest the number of letters still needed to force no-confidence vote may only be in the single digits. More negative headlines could see it cross the threshold and prompt GBP exchange rates to drop.

Meanwhile, EUR investors will remain wary of developments in Ukraine. While fears of an imminent invasion from Russia appear to have faded, a conflict on the EU’s borders remains a key risk event for the euro.

Finally, the US dollar will remain sensitive to market sentiment, potentially leading to losses for the currency if the mood continues to improve.
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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