Daily Currency Update

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All eyes were on the US Central Bank overnight

GBP - British Pound

Things remained quiet and subdued in the UK, with Prime Minister Boris Johnson's ongoing saga around who footed the bill for his Downing Street residence's renovations dominating headlines.

There was a time in recent months when political sentiment was all the rage, with sterling ignoring key data points and instead purely focusing on rhetoric such as what we have seen this week. The last few weeks have seen a change in stance, and the pound now appears immune to sagas and controversy and instead focuses in on market data, which remains relatively buoyant in the UK. The market is becoming more and more comfortable with the idea that the UK is set to rebound out of this pandemic in a healthy fashion, and with it, the pound has benefitted and may continue to do so.

Retesting of key psychological levels of 1.40 on GBPUSD and 1.16 on GBPEUR remain a real possibility in the coming days, but drivers on how and when this materialises sit firmly with the euro and the US dollar, where the majority of the action is currently taking place.

Key Movers

Overnight, we saw the Federal Reserve leave interest rates unchanged and close to zero. The pace of the asset purchases remains unchanged too. There was an acknowledgement by Jerome Powell of an uptick in the economic activity and a strong recovery from the Covid-19 pandemic, but everyone expected that it would be too early for the Fed to act on this observation.

What was more in focus were Powell's comments on inflation, which appears to be the buzz word since the start of 2021. A sustained rise in inflation may force the Fed's hand, increasing interest rates sooner than expected and tightening monetary policy as a whole, however Powell was very clear with his comments - that the current transitory rise of inflation will not warrant a rate hike just yet and that its not the time to start talking about reducing the purchase programme.

His comments triggered further losses for the US Dollar, which was already under pressure ahead of the Fed's meeting. US yields initially reacted to the upside post statement release but soon moved to daily lows. The 10 year yields rose towards 1.66 before dropping off to 1.61 again hitting a fresh daily low. The dollar index also fell to 90.55 – the lowest it has been in almost 5 weeks. We also saw the Wall Street benchmarks all end the day with minor losses despite the S&P 500s earlier run in the day. Dow Jones was the biggest loser for the day dropping 0.48%. NASDAQ reported the second biggest losses, down 0.28% and the S&P 500 futures closed the day down 0.08%.

President Joe Biden also gave his first speech to congress last night. It wrapped up his first 100 days in the White House and many public opinion polls show that he has the support of a large part of the American public.

Looking ahead, the US dollar is likely to remain on the back foot ahead of the first release of US growth figures expected to post an increase of 6.5% annualised growth. While America paid the price of a severe Coronavirus wave in January, the effects of the vaccine programme and stimulus kicked in throughout March and boosted consumption.

In the Eurozone the EU parliament gave a final vote on the Brexit trade and security deal with 660 in favour and 5 against. The deal will provide the framework for London’s new relationship with the 27 member union. EUR/USD pushed for its highest daily close in two months, after jumping to 1.2135 the next resistance for the currency pair could be seen at 1.2150.

Expected Ranges

GBP/USD: 1.3910 - 1.3985 ▲

GBP/EUR: 1.1485 - 1.1570 ▲

EUR/USD: 1.2080 - 1.2155 ▲

GBP/AUD: 1.7880 - 1.8010 ▲