The US dollar was placed on the defensive on Friday due to doubts whether the Federal Reserve will be willing to hike interest rates amidst worries over a new Covid variant of concern.
The crisis exacerbated concerns over the resilience of the UK’s economic recovery, as it led to some industries to pause operations due to the increased costs making them economically unviable.
This led to headlines warning of a stagflation in the UK, with costs rising at the same time that growth stalls, due to businesses being pressured by staff shortages and supply chain constraints.
However, the pound was able to bounce back in the latter half of the week, following the conclusion of the Bank of England’s (BoE) September policy meeting.
While the BoE opted to leave interest rates on hold at a record low, the bank struck a notably hawkish tone in its forward guidance.
In warning that inflation could soar above 4% in the near-term, the BoE suggested that the case for a moderate tightening of monetary policy had ‘strengthened’. Triggering a sharp appreciation in Sterling as GBP investors began to price in the possibility of a rate hike from the bank as early as 2022.
So far this week we have seen BoE rate speculation continue to act as a tailwind for GBP exchange rates.
However, the upside potential of the pound looks limited in the face of ongoing concerns over the UK’s economic recovery, particularly in light of the country’s current petrol shortage, following a weekend of panic buying.
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)