UK (Commonwealth) _In early Europe on Wednesday, the Pound to Dollar (GBP/USD) exchange rate failed to re-test the 1.2700 level and lost ground steadily as the dollar recorded net gains across most markets.
The two dropped to 1.2635 and were only marginally above 6-week lows of 1.2620. Political worries hurt all of the European currencies, with the EUR/USD falling to seven-week lows at 1.0670. +The rather hawkish language of the Fed also helped to net boost the dollar.
“Inflation in the U.S. remains elevated, and I still see a number of upside inflation risks that affect my outlook,” stated Fed Governor Bowman. She reaffirmed that interest rate reductions were unlikely this year during the Q&A period.
We are in a strong position right now to understand how it may evolve, she continued, adding that she has moved things into future years due to the uncertainties of the economic forecast and the statistics.
ING said, “While we anticipate an encouraging 0.1% month-over-month core PCE on Friday, the narrative may not turn more dovish unless the June CPI (out on July 11) cools off too,” indicating that Fed officials are typically wary of leaping into disinflation euphoria.
It stated that market pricing is still hovering around 45–50 basis points of easing by year-end, or very near to two rate cuts. This seems highly dovish in light of recent Fed communications, but it is, in our opinion, consistent with the most recent data.
Michelle Bowman is a governor, so her remarks have more weight because she votes annually, according to MUFG. However, Bowman is one of the FOMC’s most hawkish members, so this tone is not unusual. Again, this is hardly surprising as we know that four FOMC members want no rate decreases this year.
She did appear cautious, though, according to MUFG, considering her belief that inflation would only “move sideways” for the balance of the year. Governor Cook did, however, add that inflation will “move more sharply lower” the next year, which would undoubtedly be consistent with this year’s rate reductions.
With new home sales down to an annualized pace of 619,000 for May from a corrected 698,000 before and below consensus predictions of 636,000, there were just a few US data releases available.
On Thursday, the most recent statistics on unemployment claims will be keenly examined in light of indications of a deteriorating labor market this month.
The markets are keeping a close eye on political events in the UK, but there hasn’t been any indication that the narrative is changing, with the Conservative Party seemingly headed for a crushing defeat and unable to reclaim any ground. Pound confidence will be significantly impacted by fiscal policies.
The short-term view is favorable, according to Joe Tuckey, head of FX analysis at broker Argentex. Labour’s actions about budgetary restraint are completely at odds with the (Liz) Truss debacle. Overall, such dynamic is undoubtedly sterling-friendly.
In the long run, he said, this election is not the primary driver of sterling in the medium run, which is between now and year-end. When we return, we’ll examine whether the Bank of England will make cuts in August.
According to Credit Agricole, the performance of the Pound will be influenced by forecasts for UK GDP. A portion of the resilience is seen to be a reflection of FX speculators’ expectations that political stability would result from the July elections. This stability, along with rising real earnings and BoE easing, might help the UK economy rebound in the months to come.
We believe that some caution is necessary on the GBP outlook going into the elections, however, since positive events for the Pound have been priced in.
The closest thing to a worldwide currency is the US dollar. More foreign transactions use it as their preferred payment method than any other currency. It serves as the main reserve currency for all nations, both friendly and adversarial. Numerous nations worldwide tie the value of their local currency to it.
The US’s rise to prominence as a worldwide powerhouse after World War II is correlated with the dollar’s domination. Ever since, investors have come to rely on dollars and assets denominated in them, including US Treasury bonds.
