• By Finsok
  • 20 Jan, 2023

  • 4 min read

Pound Sterling Declines Against US Dollar, Euro Tests Nine-Month Highs

Pound Sterling Declines Against US Dollar, Euro Tests Nine-Month Highs

Cable is down 0.3% this morning after pulling back from seven-month highs tested in recent days. The pair was changing hands at 1.235 at the Asian close.

The relative weakness of the dollar in 2023 precedes the expected rate easing at the first meeting of the Federal Reserve on February 1, although the hawks still control the presence in the bank.

As Fed Vice Chair Lael Brainard said on Thursday: “Even with the recent slowdown, inflation remains high and policy needs to be restrictive enough for some time to ensure inflation returns to 2%.”

Despite this, the market appears to be convinced that a 50 basis point (bp) rate hike will not occur at the Feb. 1 meeting, and instead sees a softer 25 bp hike likely.

As such, it makes sense to see the US dollar index (DXY) continue to test eight-month lows with a current price of 101.66 after closing 0.3% lower on Thursday.

Can GBP/USD beat July highs? – Source: Capital.com

European Central Bank President Christine Lagarde all but confirmed a 50 basis point rate hike at the next ECB meeting scheduled for Feb. 2.

In the December minutes released yesterday, Lagarde said: “The monetary policy stance needs to be decisively tightened and that the current configuration of interest rates and market price expectations has not been restrictive enough to bring inflation back to target in a timely manner.”

Markets may continue to appreciate the euro in response to the aggressiveness of the ECB, but in the meantime, the EUR/USD pair is facing resistance at the highs of April 2022, which hovered between 1.076 and 1.088 last week.

The EUR/GBP, after three days of clear losses, advanced 0.3% this morning to 87.69 points after the sharpest drop in UK retail sales in December since records began in 1997.

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