GBP/USD strikes three-month high on indyref2 relief

Philip McHugh November 24th 2022 - 2 minute read

The pound rallied on Wednesday after the Scottish government faced another setback in its attempts to hold a second independence referendum.  

Sterling appears to be taking a breather this morning however, with GBP/EUR flat at €1.1595 and GBP/USD stable at $1.2086. GBP/CAD is rangebound at CA$1.6126, while GBP/AUD and GBP/NZD hold steady at AU$1.7897 and NZ$1.9332, respectively.

Coming up, will the minutes from the European Central Bank’s (ECB) latest policy meeting infuse the euro with volatility later today?

What’s been happening?

The pound was catapulted higher yesterday after the Supreme Court ruled against the Scottish parliament regarding its ability to hold another independence referendum without the consent of the UK government.

Relief at the ruling helped to offset the publication of the UK’s latest PMIs. While November’s preliminary figures beat forecasts, the UK private sector still reported its fourth consecutive contraction.

Meanwhile, the US dollar came under heavily selling pressure during Wednesday’s European trading session with the publication of the US PMIs. As they reported a much steeper-than-expected contraction in both the manufacturing and services sector this month.

Adding to the pressure on the ‘greenback’ was the publication of the minutes from the Federal Reserve’s latest policy meeting as they revealed most policymakers are in favour of slowing the pace of future interest rate hikes.

The euro’s negative correlation with the US dollar helped underpin the single currency yesterday. Although these gains were capped as the Eurozone PMIs also pointed to a contraction in private sector growth this month. Albeit one that was smaller-than-expected. 

What’s coming up?

In the spotlight today will be the minutes from the European Central Bank’s October policy meeting. The euro is likely to fall If they reveal policymakers are wary of more aggressive hikes.

In the meantime, EUR exchange rates may be influenced by the publication of Germany’s latest IFO business climate index. Another weak reading could place some pressure on the single currency this morning.

GBP investors are likely to look to a series of speeches from Bank of England (BoE) policymakers for fresh impetus today.

Markets will be looking for any hints as to how aggressively the BoE may raise interest rates in December, so a broadly hawkish consensus could help to push the pound higher.

Meanwhile, the US dollar could struggle for direction today, with the currency facing thin trading conditions as US markets close for the Thanksgiving holiday.

Written by
Philip McHugh

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