In the absence of London trading yesterday, sterling lost around half a cent against the dollar and remains under pressure against a broadly stronger greenback in early trading. Global growth concerns boosted the demand for the dollar when data released on Monday showed China’s factory activity contracting at a steep pace in April as the covid lockdowns halted industrial production and disrupted supply chains. Against the euro, the pound remains steady within its recent trading range. Looking ahead this week, on Thursday the Bank of England will announce its decision on monetary policy. Economist’s consensus opinions and current market pricing expects the central bank to raise interest rates by 25 basis points to 1%. However, the main focus of market attention is likely to be on the forward guidance given on future policy tightening than the rate hike itself.
The euro ended Monday trading with modest losses against the dollar, kept under pressure by market risk sentiment. The single currency lost demand when German economic minister Robert Habeck said Germany would back an EU-wide ban on Russian oil imports, regardless of whether the embargo was immediate or by the end of the year, but he warned the Union to expect economic costs from any embargo. Habeck was speaking ahead of tomorrow’s meeting by EU ambassadors to discuss an expected sixth package of sanctions against Russia. The euro was further undermined by data that showed eurozone manufacturing output growth stalling last month as factories struggled to source raw materials and price increases hurt demand. European Central Bank president Christine Lagarde will be speaking at the Eurogroup finance ministers meeting later today.
The dollar benefitted yesterday from a risk-averse market mood, ending the day higher against most of its major rivals. The greenback was supported by a combination of continuing tensions between Russia and Europe and Chinese covid concerns. Poor manufacturing data did little to decrease dollar demand. The Federal Reserve Bank will today start its two-day monetary policy meeting. The central bank has taken an increasingly aggressive approach to monetary policy as it tackles inflation that is soaring at its fastest pace in 40 years and is widely expected to hike rates by 50 basis points and announce plans to reduce its $9 trillion balance sheet.