GBP - British Pound
The theme yesterday was certainly that of take stock, reevaluate positions and avoid the USD. The rally in equity markets appears to have stalled somewhat, apart from the tech focused Nasdaq which has reached new record highs, and this reinforces the view that market is shifting towards a risk off environment. Today though we have the highlight of the week with the Federal Reserve meeting and announcement so that could all change.
The main beneficiary yesterday from the new market sentiment was the risk off currencies of the Japanese Yen and Swiss Franc which both appreciated against a set of their peers. USD/JPY in particular dropped down to 107.60. GBP/USD was also turbulent and swinging down to 1.2620 in the early part of the day before finishing back up towards it lockdown highs of 1.2740. The rally in sterling has continued this morning. EUR/USD traded in a similar pattern to cable yesterday underpinning the view that the USD is out of flavour at the moment.
As mentioned though this could all change given the Fed meeting later today. There are a few things that we are looking out for that will impact the USD and many of its currency crosses. The first of these is if the Fed update its forward guidance at all or it interest rate dot plot. The last time the Fed updated its forward guidance for the market was in December whereby they indicated that rates would stay at 1.75% for the whole of 2021. Whilst rates may now be different there may not be any material change to its forward guidance although there are reports that the Fed could link any rate changes in the future to key indices such as inflation or even employment numbers. This is a hark back to 2012 and was introduced by Charles Evans, the head of the Chicago Federal Reserve Bank. Secondly, the Fed may announce further adjustments to its current quantitative easing plan. At some point central banks have to put a monthly limit as to how much they are purchasing but it is likely at this stage that QE will remain open ended and unlimited. Both of these factors could create further USD weakness.
Finally, looking towards Europe yesterday saw some developments with regards to the recovery fund with one of the ‘Frugal Four’ members Denmark signalling it may be open to allowing grants to be issued alongside loans.
1.2630 - 1.2800 ▲GBP/EUR:
1.1190 - 1.1250 ▲GBP/AUD:
1.8220 - 1.8340 ▲GBP/NZD:
1.9480 - 1.9560 ▲GBP/CAD:
1.7060 - 1.7120 ▲