GBP

Following the long weekend, sterling opens this morning mildly softer against the euro. With a quiet week ahead for major economic data, sterling’s direction is going to be highly influenced by political and geopolitical headlines. Pressure has continued to mount on Boris Johnson as a result of the “partygate” scandal, with increasing calls for him to resign for breaking lockdown rules. Chancellor Rishi Sunak was once the favourite to replace Johnson as PM should he resign, however given the worsening cost-of-living crisis and Sunak’s own woes surrounding recent tax allegations, his approval rating has tanked in recent weeks. With less clarity over a potential successor to the Prime minister, there could be some short-lived volatility if Johnson does step down. Meanwhile, traders will look towards a speech made by Bank of England Governor Bailey on Thursday to gauge rate hike prospects at the next BoE meeting in May.

EUR

The euro weakened dramatically on Thursday as the European Central Bank chose to keep the interest rate at 0.5% whilst also giving very little away on their timeframe to raise the base rate. Despite the ECB confirming plans to end its hallmark stimulus scheme in the third quarter, the market chose to take more direction from ECB President Christine Lagarde’s comments on contraction when she said, “we will maintain optionality, gradualism and flexibility in the conduct of our monetary policy”. This fell short of market expectations of a more decisive schedule on tightening and led to the EUR falling against its peers. The euro also remains under pressure due to stalling peace talks between Russia and Ukraine, according to Ukrainian President Zelenskyy. This week’s IMF/World Bank meetings will likely feature calls for tougher sanctions on Russia, therefore increasing the risk of stagflation in the Eurozone.

USD

The dollar rose to a 2-year high against the euro on Friday, as more hawkish comments from Federal Reserve officials have cemented its place as the best performing G10 currency this year. Speaking on Thursday, New York Fed President John Williams said the central bank should reasonably consider raising interest rates by a half percentage point at its next meeting in May, continuing that they should “move expeditiously towards more normal levels of the federal funds rate”. Echoing Williams’ sentiment, on Monday St. Louis Fed President James Bullard cited that the Fed is open to a 75 bps rate hike, however, a rate hike of 50 bps will be appropriate. Bullard sees interest rates at 3.5% by the end of this fiscal year, which triggered the greenback bulls and pushed the US dollar index marginally above 101.00 at the press time.

Economic Calendar

13;30 USD Housing Starts (MoM)(Mar)
17:05 USD Fed’s Evans speech