Pound rallies on Kwarteng’s tax cut U-turn
The pound strengthened on Monday as GBP investors welcomed the UK government’s U-turn on high-income tax cuts.
The US dollar firmed through the first part of last week’s session as a prevailing risk-off environment saw investors favour the safe-haven currency.
This was driven by concerns over the potential collapse of China’s second largest property developer, Evergrande, amidst fears it’s collapse could have far-reaching consequences for the global economy.
The uptick in USD exchange rates then accelerated sharply in the middle of the week following the conclusion of the Federal Reserve’s September policy meeting.
While the Fed opted to leave interest rates on hold this month, it dropped some strong hints that the bank will start tapering its bond purchases by the end of the year, with Fed Chair Jerome Powell also suggesting that the taper could be wrapped up by mid-2022, much earlier than previously expected.
But the US dollar struggled to maintain these gains for long, with a notable USD selling bias emerging on Thursday as an improving market mood undermined the currency.
Ultimately however, the US dollar was able to end the week on a positive note, amidst renewed concerns over Evergrande, after it missed a crucial interest payment.
Driving movement in USD exchange rates in the first half of the week will be Powell’s testimony in front of Congress, with USD investors looking to the Fed Chair to provide additional insight into the bank’s thinking on monetary policy.
Closing out the week will be the publication of the latest ISM manufacturing PMI, which could provide additional support for the ‘greenback’, if it reports that activity in the US factory sector remained fairly robust in September.
This was driven by concerns over the potential collapse of China’s second largest property developer, Evergrande, amidst fears it’s collapse could have far-reaching consequences for the global economy.
The uptick in USD exchange rates then accelerated sharply in the middle of the week following the conclusion of the Federal Reserve’s September policy meeting.
While the Fed opted to leave interest rates on hold this month, it dropped some strong hints that the bank will start tapering its bond purchases by the end of the year, with Fed Chair Jerome Powell also suggesting that the taper could be wrapped up by mid-2022, much earlier than previously expected.
But the US dollar struggled to maintain these gains for long, with a notable USD selling bias emerging on Thursday as an improving market mood undermined the currency.
Ultimately however, the US dollar was able to end the week on a positive note, amidst renewed concerns over Evergrande, after it missed a crucial interest payment.
Driving movement in USD exchange rates in the first half of the week will be Powell’s testimony in front of Congress, with USD investors looking to the Fed Chair to provide additional insight into the bank’s thinking on monetary policy.
Closing out the week will be the publication of the latest ISM manufacturing PMI, which could provide additional support for the ‘greenback’, if it reports that activity in the US factory sector remained fairly robust in September.
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)
