Pound (GBP) Gains as Saunders Signals Future Rate Hikes
The Pound (GBP) recovered some of its today following last week’s interest rate decision from the Bank of England (BoE). The central bank’s pessimistic outlook for the UK economy likely continued to weigh on Sterling today. On the other hand, a pullback in the US Dollar (USD) may have benefitted GBP.
Comments from BoE policymaker Michael Saunders gave further credence to the central bank’s outlook today. Saunders warned that the impact of high inflation could be worse and last for longer than expected. Saunders did state that further rate hikes may be necessary however, which may have helped limit major losses for the Pound today.
On Thursday, GDP growth for the first quarter of 2022 is forecast to fall which could pull the Pound lower.
US Dollar (USD) Trends Lower as Fed Limits Rate Hike Bets
The US Dollar (USD) eased from a two-decade high over the course of the day amid profit-taking. The downside for the safe-haven ‘Greenback’ remained supported by a hawkish stance from the Federal Reserve and rising bond yields.
Markets had been expecting more aggressive moves by the Fed last week and this attitude likely weighed on the US Dollar today. Speaking on Monday, Fed policymaker Raphael Bostic stated that more aggressive action than a 0.5% rate hike was not being considered.
Looking to the rest of the week for USD, multiple speeches from Fed policymakers could see the currency’s fortunes shift. A forecast drop to US inflation on Wednesday could weaken the US Dollar should investors pare back their rate hike expectations. An expected drop to April’s PPI figures could have a similar effect.
Euro (EUR) Mixed as Possibility of Global Recession Looms
The Euro climbed against its more risk-on competitors today but struggled to make any gains against its safer rivals. The single currency came under pressure after investor morale in the Eurozone fell for a third consecutive month, prompting fears of a global recession.
Major losses for EUR may have been prevented by hawkish comments from European Central Bank (ECB) officials, however. Speaking to the Salzburger Nachrichten paper, ECB policymaker Robert Holzmann said that ‘it would be appropriate’ for the central bank to enact two or three rate hikes in 2022.
Looking to the week ahead for the Euro, Tuesday could see the single currency dip if Eurozone and German economic sentiment falls as forecast. On the other hand, final German inflation figures for April and a speech from ECB President Christine Lagarde could push EUR higher off expectations of an ECB rate hike.
Australian Dollar (AUD) Slips amid China Slowdown
The Australian Dollar (AUD) tumbled against its competitors today amid a slowdown in China’s export growth. China’s exports grew by only 3.9% in April, its weakest pace in almost two years. Continued Covid-19 measures in Shanghai and Beijing are thought to have been the primary contributor.
Looking ahead, a forecast drop to business confidence on Tuesday and consumer confidence on Wednesday could see the ‘Aussie’ tumble. A speech from Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock could also prompt movement in the currency.
Canadian Dollar (CAD) Dips as Oil Prices Tumble
The Canadian Dollar (CAD) made gains against its riskier rivals today but struggled against its safter competitors due to a pullback in crude oil prices. The price of crude per barrel fell by roughly 3% today amid a strong US Dollar (USD) and Covid-19 lockdowns in China.
With no significant data for CAD this week, the currency’s movements are likely to be dictated by crude oil prices and global risk appetite.