Sterling hit a fresh 21-month low against the dollar this morning as it continued to spiral downwards following last week’s dire retail sales and consumer confidence readings. Sterling is now set for its biggest monthly fall against the dollar since July 2019, having tumbled 3.7% this month alone, as signs of weakening economic outlook are hurting the currency. Despite this, the pound has only fallen modestly against the euro with the EU experiencing woes of their own. Data released on Tuesday showed government borrowing for last year was almost 20% higher than was forecast by the country’s budget office last month. British public-sector net borrowing, excluding state-owned banks, totalled 151.8 billion pounds versus last month’s forecast of 127.8 billion pounds. This highlights the challenge facing Rishi Sunak, who is under pressure to give new help to households and businesses hit by surging inflation, but who says he wants to fix the public finances after his COVID-19 borrowing surge.


The euro is at a five-year low against the dollar this morning as fears for Europe’s energy security have seen the common currency plummet. Russian energy giant Gazprom has told Poland and Bulgaria it will halt gas supplies from Wednesday, in a major escalation of Russia’s broader row with the West over its invasion of Ukraine. This is likely to cause major energy supply issues with Poland and Bulgaria relying on Russia for around 50% and 90% of their national consumption, respectively. The move follows sanctions imposed by Warsaw against 50 Russian individuals and companies, including Gazprom, that would see their assets frozen. Further weakening the euro’s position, German Consumer Confidence this morning slumped to -26.5 from -15.7 in April, missing the market expectation of -16 by a wide margin. Looking ahead, a speech by ECB President Christine Lagarde could offer some solace to the suffering common currency.


The dollar stands at its highest level since March 2020 and is on track for its best month since 2015, supported by the prospect of US rate hikes and on safe-haven flows fanned by slowing growth in China and Europe. The dollar index edged up to a two-year high of 102.39 in the Asia session. An interest rate hike of 50 basis points looks all but certain on May 4th, with the market now focusing on Fed guidance for the succeeding monetary policy meetings. Odds of hawkish guidance for the remaining year have strengthened as per the CME Fedwatch tool, which sees interest rate hikes of 50bps at each of the next two meetings by the Fed. Meanwhile, the underperformance from the US Durable Goods Orders yesterday did little to halt the dollar’s surge, despite coming in at 0.8% lower than the market consensus of 1%. With only Pending Home Sales to look forward to from the US docket today, it is likely the dollar will continue to move in line with safe-haven demand.

Economic Calendar

15:00 USD Pending Home Sales (MoM)(Mar)
17:00 EUR ECB’s President Lagarde speech