Sterling falls further as data concerns grow
May 22nd: Highlights
- Inflation and growth number to determine monetary policy
- Dollar’s continued gains based on sentiment
- Euro selling abates although political concerns continue
Sterling at Dec. ’17 level
The pound fell again yesterday trading below 1.3400 versus the dollar for the first time in 2018. It reached a low of 1.3391 before staging a slight recovery as day traders covered short positions, closing at 1.3425. Overnight the fall has continued with a low of 1.3414 (06.30BST) being seen.
This week’s data releases; inflation tomorrow and GDP on Friday are being billed as crucial to the prospect of another rate hike in 2018. Inflation probably won’t have fallen by as much as it did in March, but the data will be encouraging as it continues to move back towards the target of 2%, although that doesn’t bode well for a tightening of monetary policy.
Friday’s Q1 growth report on the other hand is unlikely to provide any encouragement as the UK economy will probably struggle to register any growth at all with analysts expecting a QoQ rise of just 0.2%.
Dollar rally now based on sentiment
The greenback has surged by a little over 5% in a month as other G7 currencies have been firmly on the back foot providing the dollar with a strong headwind which is now beginning to fade.
Yesterday the dollar index fell back towards what will now be support at 93.50, making a low of 93.47. The yield on ten-year Government debt also fell a little from recent levels, encouraging a certain amount of profit taking on long dollar positions.
Tomorrow’s release of minutes from the FOMC meeting which was held in the first week of the month are now a little out of date, but traders will still be interested to understand a little of the feelings of members on the longer-term outlook for monetary policy and their view on the source and direction of inflation.
Euro finding a foothold
The Italian people voted for a change from the old, corrupt, ways but if it leads to further crisis, the coalition between Five Star and League could quickly disintegrate.
There has been no word yet from Brussels since it appears they prefer to wait for the Government and Prime Minister to be confirmed as then they will have a clearer idea about what it is facing.
The single currency steadied a little yesterday albeit at a lower level, which suits the ECB. It reached a high of 1.1796 having traded as low as 1.1716 before rallying. The outlook for the currency is still linked to the prospect of a continued rally for the dollar but should the Italian situation worsen, then 1.1680 is the next technical support level.
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.”