Pound (GBP) Soars on Political Optimism
The Pound (GBP) roared higher yesterday as markets grew increasingly hopeful that Rishi Sunak, the new UK Prime Minister, would bring stability to the country.
GBP investors were particularly pleased with Sunak’s cabinet reshuffle. The PM purged the government of Liz Truss allies (many of whom were seen as inexperienced) and replaced them with more heavyweight figures.
Turning to today, UK politics could continue to drive the Pound. Sterling jumped as the European session opened, with investors optimistic about the new government’s direction.
Euro (EUR) Challenged amid Mixed German Data
The Euro (EUR) was mixed yesterday, rising against some of its weaker peers but slipping elsewhere, as German business sentiment dropped to its lowest level since May 2020.
Cushioning EUR’s losses was the currency’s negative correlation to the US Dollar (USD), which suffered a sharp sell-off.
The single currency may be vulnerable to losses today amid a lack of Eurozone data and ahead of the European Central Bank (ECB) decision tomorrow. Meanwhile, Russia-Ukraine news could continue to impact EUR exchange rates.
US Dollar (USD) Slides as Markets Pare Rate Rise Bets
The US Dollar (USD) tumbled during yesterday’s trade as a risk-on market mood and falling US Treasury yields dampened the appeal of the safe-haven currency.
In addition, US economic data in the afternoon only added to the downside pressure. American consumer confidence hit a three-month low, with views of the present situation dropping to their worst since April 2021. This, in turn, fuelled speculation that the Federal Reserve may slow its pace of monetary policy tightening.
Looking ahead, a lack of market-moving US data today could leave USD to continue trading on risk appetite.
Canadian Dollar (CAD) Softens amid Lack of Data
The Canadian Dollar (CAD) dropped yesterday as a lack of data and wavering oil prices left the commodity-linked ‘Loonie’ without much support.
Today, the Bank of Canada’s (BoC) interest rate decision is in focus. While markets expect another 75-bp hike, traders may be more interested in the expected pace of future rate rises.
Australian Dollar (AUD) Rises as CPI Exceeds Forecasts
The Australian Dollar (AUD) strengthened in overnight trade after Australia’s inflation rate reading exceeded forecasts, prompting bets for continued interest rate rises from the Reserve Bank of Australia (RBA).
New Zealand Dollar (NZD) Gains amid Risk-On Mood
The New Zealand Dollar (NZD) also rose in overnight, despite a sharp drop in business confidence. The upside came as the risk-sensitive ‘Kiwi’ enjoyed both an upbeat market mood and its positive correlation to AUD.