Pound (GBP) muted as borrowing costs edge higher
The pound (GBP) found it difficult to gain traction against stronger currencies yesterday as UK government borrowing costs continued to rise, with ongoing concerns that the Middle East crisis may persist.
Sterling’s growing sensitivity to market sentiment also left it vulnerable against safer assets, although it managed to post gains against riskier peers.
All eyes are now on the Bank of England’s (BoE) interest rate announcement. While no policy change is anticipated, any forward guidance will be key. A more hawkish tone in light of recent geopolitical tensions could help support the pound.
Euro (EUR) directionless amid conflicting drivers
The euro (EUR) lacked a clear trend yesterday, with competing influences pulling the currency in different directions.
Weaker Eurozone economic sentiment weighed on EUR, alongside its negative correlation with a strengthening US dollar (USD). At the same time, a cautious market mood offered some support, while expectations ahead of the European Central Bank (ECB) decision kept movement limited.
Today brings a busy schedule for the euro, with fresh Eurozone GDP and inflation data due ahead of the ECB’s policy decision. EUR may find support if the central bank hints at further interest rate increases in the months ahead.
US dollar (USD) supported by cautious trade
The US dollar advanced yesterday as markets adopted a more risk-averse stance, with investors unsettled by the possibility of a prolonged US blockade of the Strait of Hormuz.
The Federal Reserve’s latest rate decision also underpinned USD, as policymakers left rates unchanged but revealed signs of a hawkish divide within the committee.
Looking forward, attention turns to the preliminary reading of US first-quarter GDP later today. If growth is shown to have accelerated as expected, the ‘greenback’ could extend its gains.
Canadian dollar (CAD) lifted by oil price gains
The oil-linked Canadian dollar (CAD) strengthened yesterday, supported by a rise in crude prices. At the same time, the Bank of Canada’s (BoC) rate announcement prompted only minor volatility, as policymakers held rates steady in line with expectations.
Focus now shifts to Canada’s latest GDP release. A potential contraction in March could put pressure on the ‘loonie’.
Australian dollar (AUD) rebound capped by market mood
After suffering notable losses in the previous session, the Australian dollar (AUD) attempted to recover overnight. However, a risk-off environment limited the extent of its rebound.
New Zealand dollar (NZD) undermined by confidence slump
The New Zealand dollar (NZD) also sought to regain ground overnight, but a sharp drop in domestic business confidence – falling from 32.5 in March to -10.6 in April – weighed on the currency.
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