Sterling fall Turns to a Rout
Morning mid-market rates – The majors
May 2nd: Highlights
- Political woes add to economic concerns
- Dollar rally continues
- Euro testing 1.2000
Pound set to test year’s low
Then, there was turnaround in sentiment towards the dollar, BoE Governor Mark Carney poured cold water on rate talk, and the continued issue of the Irish border again came to the fore.
Sterling fell to low of 1.3588 yesterday as more long positions were liquidated and traders continued to see that in the current environment the pound has very few redeeming features.
It is perhaps ironic that the fall in Sterling precipitated by the removal of expectations of a rate hike may in the end bring about a hike should the pound continue to fall as this would raise concerns over inflation. For now though, the immediate target appears to be 1.3460, the low for the year so far. A sustained break below that level brings the December ‘17 low of 1.3302 into sharp focus.
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Dollar continues to gain
Speculation is growing over the employment data that is due for release on Friday with expectation that wages growth will be in excess of 3% which will all but confirm a rate hike, at the FOMC meeting following today’s, in June, and the headline will again be close to 300k. Given this report’s ability to spring a surprise, traders will be cautious about getting too far ahead of themselves following last month’s disappointing data despite a similar level of expectation.
The FOMC meeting which is currently taking place in New York is unlikely to spring any surprise particularly given Fed Chair Jerome Powell’s more reactive stance on monetary policy. On Monday, the Fed’s preferred measure of inflation was released. Core Personal Consumption Expenditure was in line with expectations and Powell may refer to this at his press conference later as the market studies his words for a more hawkish rhetoric and a further indication of a continued tightening of monetary policy.
Euro testing 1.2000
However, Jens Weidmann, the President of the Bundesbank who is making a speech on Friday which is expected to formally launch his candidacy for the Presidency of the ECB will no doubt touch on his concerns that inflation is set to rise rapidly, and attention needs to be paid to a tightening of monetary policy.
Yesterday, the single currency made a low of 1.1980 although it has managed to regain the 1.2000 level overnight.
G7 currencies are currently being dominated by the dollar which has been falling for a considerable time and still cannot be considered strong despite the current rally.
The ECB is content for the Euro to be reactive to global economic trends since the attitude of Mario Draghi, the current ECB President is that while the Eurozone economy continues to grow, and inflation is low the currency will, to a certain extent, take care of itself.
Versus Sterling, the Euro gained again yesterday as Sterling was sold aggressively. It reached 1.1335, again testing Sterling’s low from Mid-March.
Have a great day!
About Alan Hill
Alan has been involved in the FX market for more than 25 years and brings a wealth of experience to his content. His knowledge has been gained while trading through some of the most volatile periods of recent history. His commentary relies on an understanding of past events and how they will affect future market performance.”