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Pound firms as Hunt backs more interest rate hikes

Philip McHugh May 30th 2023 - 2 minute read

The pound rallied at the end of last week as UK Chancellor Jeremy Hunt signalled his support for further interest rate hikes.

Sterling is mostly rangebound at the start of today’s session, while GBP/EUR has climbed to €1.1559, GBP/USD is flat at $1.2345. GBP/CAD is stable at CA$1.6785, while GBP/AUD and GBP/NZD hold steady at AU$1.8922 and NZ$2.0431, respectively.

Looking ahead, will a deterioration of economic sentiment in the Eurozone, pull the euro lower today?

What’s been happening?

The pound got off to a solid start on Friday. Following the publication of the UK’s latest retail sales figures.

April’s figures reported sales growth rebounded from –1.2% to 0.5%, against forecasts for a more modest 0.3% expansion.

The pound’s gains were extended by comments from UK Chancellor Jeremy Hunt, who said he would back more interest rate hikes from the Bank of England (BoE). Even if this risks the UK slipping into a recession.

The US dollar, meanwhile, initially faltered on Friday, with reports of a potential deal to resolve the US debt ceiling crisis cheering markets and sapping demand for the safe-haven currency.

However, USD exchange rates then bounced back in the afternoon after a surprise uptick in the US core PCE price index bolstered Federal Reserve rate hike bets.

Finally, the euro was left to trade on the defensive at the end of last week, amid the absence of any notable EUR data releases.

What’s coming up?

The release of the Eurozone’s latest economic sentiment figures will be the only data release of note today.

May’s index could see the euro falter if economic sentiment continued to deteriorate this month.

On the other side of the Atlantic, fresh US debt ceiling jitters may help to prop up demand for the US dollar today.

Finally, in the absence of any notable UK data releases, the pound may be left to trade without any strong directional bias.

Written by
Philip McHugh

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