The pound had another day to forget on Tuesday as participants sold the beleaguered currency hard throughout the whole trading day. The major weakness was seen against the US dollar, where losses notched up to 1.15% by the New York close. Against the euro the pound shed around 0.60%, taking it to the €1.18 level.
A perfect storm is brewing for sterling weakness at present. Rising inflation, out-of-control energy prices, and a weakening consumer outlook will drive the Bank of England to stand pat. This combination brings in the prospect of a recession this year too. On the other side of the trade, against the US dollar, the Federal Reserve remains extremely hawkish, with 7 more rate hikes expected within 2022. This dynamic should keep GBPUSD under pressure in the short to medium term. GBPEUR stands a lot better chance of holding its ground with the eurozone economy in a similar position to the UK’s. Additionally, the ECB remains very cautious about the idea of hiking interest rates. While more weakness could be on the cards for GBPEUR, it’s certainly not a clear-cut outcome.
Written by Viv Savani. 8:33am, April 27th 2022
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