Pound (GBP) Slumps on BoE’s Dovish Hike
The Pound (GBP) initially firmed in the run-up to the Bank of England (BoE) interest rate decision yesterday but plunged after the bank struck a dovish tone.
Although policymakers voted in a 25-basis-point rate rise, as markets expected, they also warned that the UK’s economic outlook had darkened. As a result, their forward guidance became more dovish. The BoE said that there ‘might be’ further ‘modest’ hikes in the coming months.
With no UK data out today, any new developments in the Russia-Ukraine war could drive most movement in the Pound.
Euro (EUR) Climbs as Markets Remain Hopeful of Peace
The Euro (EUR) strengthened through yesterday’s session, despite the Eurozone’s final CPI printing above forecasts, as markets remain upbeat about the potential of a peace deal in Ukraine.
The single currency also enjoyed its negative correlation to the weakening US Dollar (USD).
The Eurozone’s balance of trade data this morning could impact EUR exchange rates. Economists expect the bloc to print a trade deficit for the third consecutive month, which may weigh on the single currency.
US Dollar (USD) Continues Post-Fed Downfall
The US Dollar extended its post-Fed losses yesterday as markets remained upbeat, thereby denting the safe-haven ‘Greenback’.
Although the Federal Reserved raise rates and set out an aggressive tightening cycle in its meeting on Wednesday evening, stocks rose and the US Dollar fell. This seems to be evidence that markets have faith in the Fed’s approach to policy, while the US central bank’s communication has been clear and so the hawkish move was already priced in.
Through most of today’s session, USD may trade on risk appetite. Some Fed speeches in the afternoon could also have an impact.
Canadian Dollar (CAD) Wobbles amid Lack of Data
The Canadian Dollar (CAD) was mixed yesterday as a lack of Canadian data left the currency somewhat rudderless. However, a steady rise in oil prices helped prevent losses for the commodity-linked ‘Loonie’.
Looking ahead, an expected recovery in Canadian retail sales growth could provide CAD with some support today.
Australian Dollar (AUD) Moves Sideways ahead of China-US Talks
The Australian Dollar (AUD) wavered overnight as the risk-on rally fizzled out. With Joe Biden to speak to Chinese premier Xi Jinping today, markets are anxious about the potential outcome.
New Zealand Dollar (NZD) Flickers amid Mixed Market Mood
Likewise, the New Zealand Dollar (NZD) fluctuated in overnight trade as the mixed market mood left the risk-sensitive ‘Kiwi’ without a clear direction.