Pound in Freefall as BoE Forecasts Point to Stagflation

Pound (GBP) Tanks as BoE Decision Sets Alarm Bells Ringing 

The Pound (GBP) plunged to multi-month lows yesterday after the Bank of England’s (BoE) interest rate decision rattled investors. 

The BoE hiked rates by 25 bps, as expected, but three officials voted for a steeper rise, suggesting that opinions are split. In addition, the bank now expects inflation to peak above 10% in the autumn and predicts that the UK economy will contract in the fourth quarter of 2022 and during 2023. 

The decision shows just how dire the UK’s economic outlook is. Policymakers feel compelled to continue hiking rates to tame inflation despite the very real risk of stagflation. As a result, GBP nosedived. 

Amid a lack of notable UK data today, analyses of the BoE decision could continue to affect the Pound. 

Euro (EUR) Varies as Markets Digest Rate Decisions 

The Euro (EUR) had a mixed session yesterday, shedding its gains against a strengthening US Dollar (USD) after German factory orders contracted by 4.7% in March. 

However, the single currency was able to strengthen against some of its riskier rivals as the global market mood remained downbeat.  

A larger-than-expected decline in German industrial production could weigh on EUR this morning. Other than that, any news from the Russia-Ukraine war may also impact the Euro. 

US Dollar (USD) Recovers Post-Fed Losses 

The US Dollar climbed yesterday as the currency recovered from its post-Federal Reserve slump

In addition, a risk-off market mood lent the safe-haven ‘Greenback’ some support. 

Turning to today, the latest US jobs data is in focus. With strong results forecast for both the non-farm payrolls and unemployment rate, USD could climb. 

Canadian Dollar (CAD) Firms as Crude Markets Stay Strong 

The Canadian Dollar (CAD) managed to rise against many of its peers yesterday as oil prices held near two-week highs, thereby supporting the commodity-linked ‘Loonie’. 

An expected drop in the Canadian unemployment rate could boost CAD later on today. 

Australian Dollar (AUD) Softens following RBA Statement 

The Australian Dollar (AUD) wavered lower overnight following the release of the Reserve Bank of Australia’s (RBA) monetary policy statement. In the statement, the RBA raised its inflation projections while cutting growth forecasts, presenting a poorer outlook for the Australian economy. 

New Zealand Dollar (NZD) Rangebound despite Headwinds 

The New Zealand Dollar (NZD) showed some resilience in overnight trade. The risk-sensitive, resource-linked currency moved mostly sideways, despite a bearish mood and a pullback in commodities prices. 

Samuel Birnie

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