GBP opens positively, largely holding onto last week’s gains against the EUR and the USD. Sterling hit 20-month highs against the single currency in Friday’s afternoon session and has maintained its 1-month highs against the dollar. The Bank of England’s hawkish policy outlook and renewed Brexit optimism helped the British pound stay resilient. Escalating energy prices have seen consumer prices surge to levels way past the Bank of England’s target for price stability and this has led to comments from the from Bank officials to suggest action is needed. “Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations,” Governor Bailey said during an online panel discussion on Sunday.
The EUR has struggled to find a footing over the weekend, continuing its recent underperformance, opening 0.35% lower against the pound and 0.3% lower against the dollar. This is largely due to the European Central Bank’s dovish outlook on monetary policy. “Monetary policy will continue supporting the economy in order to durably stabilize inflation at our 2% inflation target over the medium term,” European Central Bank governor Christine Lagarde said in the 2021 Per Jacobsson Lecture at the International Monetary Fund on Saturday. This has led the market to believe the ECB are less likely to begin tapering for now.
The USD has clawed back some of the losses seen last week against the GBP and EUR. The greenback is gathering strength in the early hours of the European session on Monday as investors stay focused on the US Treasury bond yields in the absence of significant fundamental drivers and high-tier data releases. The dollar index has now slipped about 0.6% from last week’s 2021 highs as investors figure that while price pressures might pull forward hikes by the Federal Reserve, other central banks may need to be more aggressive over the tightening cycle. The rest of the world is currently outpacing the US in inflation, so this puts more pressure on the BoE and ECB to move on policy before the Fed.
09:30 US Fed’s Quarles speech
18:00 US Monthly Budget Statement(Sep)