Pound recoups some of its losses as stock markets rally
Thursday 25 August, 2022
Daily Currency UpdateSurging gas prices look to be pulling Bank of England (BoE) price expectations around. Markets now price in 170bp of interest rate hikes by year-end as the Bank is potentially forced to raise rates in an effort to curb soaring inflation.
The narrative around rising natural gas prices doesn’t look like it’ll be going away in the next few months, with an additional risk being whether the US hurricane season will disrupt US gas production also. The UK was scheduled to have phased out Russian gas purchases by the end of the year, however, in July it had already reached its goal which has possibly aided the pound’s modest rebound over the past 24 hours. GBP/USD currently sits around 1.1835.
Key MoversThere was no data out for the Eurozone yesterday as EUR/USD also gained on the US dollar weakness, moving back above parity for a brief moment this morning. Today August’s German IFO figures are released, as well as the European Central Bank minutes form the July meeting in which they hiked 50bps. Although rarely a market mover, with the uncharacteristic interest rate hike and the market pricing in a 125bp hike by year-end, it may shed some more light on the future moves from the central bank.
As mentioned, the US dollar was weaker yesterday on the back of risk sentiment improving. Investors tend to move towards the safe haven US dollar during riskier climates. Chinese authorities have fixed the renminbi stronger than the model estimates had suggested. The fear was that the People’s Bank of China would allow another 6% fall similar to April/May. The PBoC fixing rate tends to impact market risk sentiment, so a stronger renminbi infers confidence in the economy which is the reason why stock markets are currently trading higher. Today, The Jackson Hole Symposium in Wyoming begins with a number US Federal Reserve speakers throughout the day, before the keynote speech on economic outlook from Fed Chair Jerome Powell tomorrow.
- GBP/USD: 1.1725 - 1.1880 ▲
- GBP/EUR: 1.1730 - 1.1890 ▼
- GBP/AUD: 1.6900 - 1.7070 ▼
- EUR/USD: 0.9920 - 1.0040 ▲