It seems Sterling exchange rates have seen the last of positive days for now, with GBPEUR trading at 1.15 and GBPUSD falling into the 1.19 area on Friday. The reason for these movements is simple, there are big concerns over the Global economy right now with rising inflation and questions over whether the general public will be able to afford these steep rises in costs across the board. When there is an economic concern, we always see investors flock to the U.S Dollar, and that is why we are seeing the strength we are seeing in USD, even though the EURUSD price is the lowest it has been in a long time (And that’s with priced in rate hikes).
Speaking of rate hikes, it seems the market is now expecting the BoE to be a little more dovish as current rate hikes have not succeeded in battling inflation, currently, we are expecting a 50bps hike in August, but this is subject to change depending on how the Fed moves over the next month and how the UK economy performs. We do have a good employment situation in the UK, but the main concern is if the companies themselves are not doing well, it won’t be long until we see rising unemployment again.
This week should begin relatively calmly as it is a holiday in the U.S on Monday- but from Tuesday we should begin to see some fireworks- the RBA is expected to hike interest rates to 1.35% early Tuesday morning which should boost the AUD significantly. Throughout the week we also have numerous BoE speakers including Governor Bailey himself, this will be significant as the market is still weighing whether the BoE will hike again and by how much. We also have FOMC minutes on Wednesday evening which will most probably strengthen the U.S Dollar due to recent hawkishness by the Fed.
Lastly on Friday we have NFP’s for the U.S with a contraction expected in the amount of new jobs added compared to last month, as always this is a notoriously unpredictable piece of data so I would proceed with caution of trading on Friday.