The pound tumbled yesterday after the Bank of England (BoE) forecast a UK recession beginning in the fourth quarter of this year.
Since then, Sterling has managed to regain some ground. This morning it’s fairly flat, with GBP/USD and GBP/CAD holding steady at $1.2143 and C$1.5640, respectively. GBP/EUR has edged up to €1.1876, while GBP/AUD and GBP/NZD are rising to A$1.7472 and N$1.9313.
Later today we have the all-important US non-farm payrolls and unemployment rate reports. These have the potential to cause significant movement across the market.
Yesterday, the Bank of England raised interest rates by 0.5%, as was broadly expected.
What’s been happening?
However, the rate hike came with a stark warning. The BoE sees the UK falling into a recession towards the end of the year, which it expects to last for five quarters.
Sterling slumped in response, but quickly managed to recoup most of these losses against many of its peers.
Meanwhile, the euro made considerable gains. This was seemingly due to cross-driven strength from the pound’s initial sell-off along with the European Central Bank’s (ECB) economic bulletin, which was upbeat in comparison to the BoE’s outlook.
The US dollar was relatively subdued as a modest appetite for risk muted the safe-haven currency’s appeal.
Movement in the pound may be limited today amid a lack of economic data, although markets will likely continue to digest yesterday’s BoE announcement and its implications.
What’s coming up?
The main focus is on the latest jobs data from the US, including non-farm payrolls and the unemployment rate. These key indicators of US economic health will likely have a big impact on expectations of further Federal Reserve rate rises.
If the reports show a strong labour market, this could raise the likelihood of more aggressive action from the Fed. As a result, the US dollar would likely climb, while the euro and many risk-sensitive currencies could slip.
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)