The Pound broke higher during Tuesday’s trade against both the Euro and US Dollar amid speculation that downside risk for the currency was abating. Theresa May has said she wants to conclude cross-party talks over Brexit within a week, paving the way either for a formal deal or at least a series of votes in parliament to determine the way ahead. Ultimately no-deal looks less likely, and there’s speculation that the Bank of England may hint at a summer interest rate hike in a bid to keep inflationary pressures in check. Sterling saw its best day of gains in six weeks against the US Dollar and could continue along this path if the positive theme can be maintained.
Donald Trump has been vociferous in his criticism of the Federal Reserve’s handling of monetary policy and wants to see aggressive interest rate cuts in a bid to further fuel the economy. This isn’t the first such interference in monetary policy by the President but by far the most aggressive. Still, given the underwhelming inflation outlook, the Fed may feel more inclined to accede to his wishes. Today’s policy statement and subsequent press conference will be closely followed for any indication of a more dovish stance.
The Pound posted its biggest one-day gain against the US Dollar since mid-March in yesterday’s session, lifting the pair back to levels not seen in almost two weeks as a result. Given the rumoured policy convergence between the Bank of England and the Fed, further Sterling gains could follow.
The Euro posted a third consecutive day of gains over the US Dollar during yesterday’s session, with a slew of better-than-expected Eurozone economic readings lending Euro support. Friday’s inflation data could prove instrumental in determining where the pair goes next.
In yesterday’s session, Sterling made an advance against the Euro, with upbeat economic data from the Eurozone serving to limit gains. Tomorrow’s policy update from the Bank of England and Brexit developments will be closely followed.