GBP

The pound hit a fresh 2-year low against the dollar and its lowest in 7 months against the euro this morning, hurt by data showing the UK economy contracting in March and further negative Brexit headlines. Official figures showed that the economy went into reserve in March as surging prices, fuelled by the war in Ukraine, threaten to plunge Britain into recession. Gross Domestic Product (GDP) declined by 0.1% over the month after growth in February was revised down to zero. Worryingly, the all-important services sector was the biggest drag on the economy as consumer facing services suffered a slide in sales. Even before this morning’s disappointing data, sterling found its under pressure from Brexit woes. Foreign Secretary Liz Truss will hold crunch talks today with Maros Sefcovic the Vice President of the European Commission as ministers considers whether to override parts of the post-Brexit deal on Northern Ireland. The Times and the BBC have reported that Attorney General Suella Bravermann is said to have approved the scrapping of swathes of the agreement. Yesterday, Irish Foreign Minister Simon Coveney warned that the EU would launch legal action and possibly impose countermeasures if London took unilateral action.

EUR

Despite hawkish comments from several European Central Bank policymakers, the euro hit multiyear lows against a dominant dollar in early trading. An intense flight to safe haven assets has resulted in the single currency trading at its lowest level since 2017 against the greenback. European Central Bank President Christine Lagarde signalled yesterday that she would support the central bank raising its main interest rate in July, leading the market to believe that the first increase in almost a decade is almost certain to go ahead. Lagarde said in speech in Slovenia yesterday that she expected the bank to stop expanding its balance sheet early in the third quarter and to raise rates “sometime” after that.

USD

The dollar hit a two-decade high today after US inflation fell less than economists had expected, keeping the Federal Reserve Bank on course to tighten monetary policy aggressively over the coming months. The Consumer Price Index climbed 8.3% on an annual basis in April, easing from 8.5% in March but still above the expected 8.1%. Although the data suggested inflation may have peaked, it was unlikely to cool at a pace which would derail the central bank’s current rate hike cycle plans. The market is now fully priced for at least a 0.50% hike in the rate at the next two policy meetings. The impact of rising global interest rates on economic growth has impacted on equity markets worldwide and has created further demand for the safe haven dollar.

Economic Calendar

13:30 USD Initial Jobless claims
13:30 USD Producer Price Index