GBP rallies on BOE hawkishness

There were two major themes to Thursday’s trade. One was the decline in the US dollar and the other what’s the recovery of the pound.

USD weakened by perception Fed will delay rate hike

The dollar’s woes are reflection of the market concerns regarding the pace of the US Federal Reserves normalisation of interest rates and monetary policy. We will get some major clues today as to how that policy might develop when the personal consumption and expenditure indices are released along with the University of Michigan’s consumer sentiment survey. The PCE index is one that the Federal Reserve watches closely for signs of looming inflationary pressures and, coming on the last day of the month, the market movement for the US dollar may well be exaggerated as traders close their month-end positions. GBPUSD starts Friday at 1.4188 having spiked above 1.42 overnight.

Sterling has recovered elsewhere as well. Comments from Bank of England members that suggest they will have to raise the base rate early in 2022 caused a wave of GBP buying.

The GBPEUR rate rose nearly a cent yesterday but is still struggling to break above 1.1650. There is a smattering of eurozone data this morning; industrial production, inflation and producer price indices from a number of member states but the eurozone business climate and business confidence indices will be the driving factor for the euro today. The forecasts are quite mixed, so there is room for some volatility here and, if the pound can push above 1.1650 there is a real possibility of a rally on the last day of the month.

Japanese unemployment in surprise rise

We saw overnight that Japanese employment worsened last month. The unemployment rate rose to two point 8%. That’s remarkably low by international standards but this data had been trending lower since last November. The GBPJPY rate, which moved higher yesterday with most other GBP based exchange rates, settled just below JPY 156 overnight.

That Sterling recovery also showed up in the GBPAUD and GBPNZD rates and the stoic Canadian Dollar was also forced to give way. So GBPAUD is up at 1.8370, GBPNZD is pushing past 1.9560 as I write and the GBPCAD rate is back to the top of its recent range at 1.7150. That’s a level that has been tested all month without a break.

It’ll be a busy Friday but, to those in the UK, have a great three-day break to celebrate. Who knows, in three weeks or so, we may be able to catch up for a pint together.

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