Global overview
The British pound hovered near one-year highs against the U.S. dollar in choppy trade after the Bank of England approved a 12th straight interest rate hike. As expected, the BOE raised rates by 25 basis points to new 2008 highs of 4.50%. Sterling so far has kept to its range as London’s rate guidance appeared to stop short of more hawkish expectations. The BOE signaled it would need to see “more persistent” inflation pressures to raise rates further. While the greenback kept toward the bottom of its range against sterling, it moved higher versus other rivals with the dollar index notching one-week peaks. Elsewhere, Canada’s dollar flirted with one-week lows while the euro slipped to three-week lows against its U.S. counterpart. U.S. consumer inflation proved a mixed bag for the dollar as headline inflation cooling to a two-year low below 5% bolstered the case for the Federal Reserve to suspend rate increases, while core prices remaining stubbornly high cast doubt on rate cuts materializing by year-end.
EUR/USD slides to 3-week lows
The euro retreated further from recent one-year highs as Europe’s single currency fell to its lowest level in three weeks against the greenback. A spate of weak data from top economy Germany has put a crack in the euro’s bullish foundation. Meanwhile, U.S. inflation remaining far above the Fed’s 2% goal has cast doubt on America’s central bank slashing interest rates by the end of the year. Euro declines were broad based as it notched new 2023 lows versus the buoyant UK pound.
Sterling falls after widely expected UK rate hike
Sterling wavered below one-year highs after the Bank of England delivered a widely expected rate hike to 4.5% from 4.25%. The nine-member rate-setting committee voted 7-2 in favor of today’s move, with the two dissenters preferring to keep rates at 4.25%. The central bank’s new economic forecasts were ones for the record books as it revised up its 2023 growth projection to a 0.25% expansion from the minus 0.5% it had estimated in February. The BOE sees inflation, currently above 10%, cooling to 5.1% by year-end which is higher than its February estimate of 3.9%. The BOE is likely to raise rates further in the months ahead as it acknowledged that inflation risks are “skewed significantly to the upside.” But upside for sterling could prove more muted, given the still anemic outlook for UK growth and the BOE stopping short of signaling continued rate increases.
Dollar weathers weaker data
The U.S. dollar’s recovery from recent lows remained intact as China weakness and cautious interest rate guidance from the UK overshadowed signs of moderation in the world’s biggest economy. Weekly jobless claims jumped more than expected to 264,000 in the latest period, the highest level since late 2021. Wholesale inflation, according to the producer price index, cooled more than expected to an annual rate of 2.3% in April from 2.7% in March. The data, on balance, supports the case for the Fed to pause rate hikes but stopped short of validating bets on rate cuts materializing by year-end.
Euro falls to bottom of recent range
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 8-12
Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
