GBP/USD extends decline to 22-month low

The pound continued to retreat against the US dollar yesterday as investors continued to raise doubts over the next Bank of England (BoE) interest rate hike.

Sterling appears to have stabilised this morning however, with GBP/EUR flat at €1.1825 and GBP/USD subdued at $1.2567. GBP/CAD and GBP/NZD are rangebound at C$1.6101 and NZ$1.9132, respectively, while GBP/AUD retreats to AU$1.7553.

Looking ahead, will a more hawkish outlook from ECB President Christine Lagarde help to bolster the euro this afternoon?

What’s been happening?

The pound trended lower again on Tuesday, with investors growing increasingly doubtful over how aggressively the Bank of England will continue to raise interest rates.

While a May rate hike still seems likely, increasingly cautious rhetoric from the BoE has prompted GBP investors to start repricing their expectations for additional hikes through the rest of the year.

The euro was also placed on the defensive yesterday amidst fresh concern over the situation in Ukraine. This offset some hawkish comments from European Central Bank (ECB) policymaker Martins Kazaks in which he expressed his support for a July interest rate hike.

The US dollar, meanwhile, firmed on Tuesday as a cautious market mood continued to buoy the appeal of the safe-haven currency.

This upside was reinforced by a rebound in US durable goods orders.

What’s coming up?

Kicking off today’s session was the publication of Germany’s latest consumer confidence index, where a record drop in sentiment could place the euro on the defensive this morning.

However, the primary focus for EUR investors today will be on a speech by ECB President Christine Lagarde later this afternoon.

If Lagarde seems in anyway supportive of some of the recent hawkish rhetoric we have heard from her colleagues, then the euro could jump.

In the meantime, the Confederation of British Industry’s (CBI) distributive trades data could act as a headwind for the pound today, as economists forecast April’s index will have fallen into negative territory for the first time in over a year as the cost-of-living crisis softens retail sector activity.

Finally, in the absence of any notable US data the direction of the US dollar may be directed by market sentiment, potentially buoying USD exchange rates if the mood remains cautious.