GBP

The pound has continued its winning streak against dollar, rising for the third consecutive day against a broadly weaker greenback. Against the euro, sterling remains steady. On Thursday, Chancellor Rishi Sunak announced new plans to combat the cost-of living crisis, when he pledged to send payments of £650 to around 8 million of the country’s lowest income households, amounting to £5 billion in support. Alongside the support package, Sunak also announced a 25% windfall tax on oil and gas producer’s profits which marks a change of heart for the government, which had previously resisted windfall taxes calling them a deterrent to investment. Following the announcements, the chancellor told Sky news that he believed the support package would have a minimal impact on inflation and he expected the Bank of England to take “decisive action” to get prices bank under control as the central bank’s independence to set interest rates was the best way to ensure inflation returned to its 2% target.

EUR
The euro eased slightly from its weekly high against the dollar in early trading. The single currency has had a mostly positive week against the greenback, buoyed by several comments from European Central bank policymakers who signalled that the central bank may have to be more aggressive in tightening monetary policy than financial markets had previously considered at their July policy meeting. Adding to those expectations, European Central bank governing member and Spanish Central Bank chief Pablo Hernandez de Cos said this morning the ECB’s Asset Purchases Programmes (APP) will end at the start of the third quarter and a hike will follow shortly after, adding that inflation will remain high in the eurozone in the coming months. ECB Chief economist Philip Lane will be speaking later today .

USD

The dollar was on course today for back-to-back losing weeks against a basket of its major rivals. The dollar index is headed for a 1.5% fall this week following last week’s 1.4% slide, and this would be its first two-week decline since the turn of the year. The greenback has lost its recent traction as traders lowered Federal Reserve Bank hike expectations amid signs that the central bank might slow or even pause its tightening cycle in second half of the year. This week’s minutes from the central bank showed that most policymakers believed a 50-basis point hike was appropriate at the June and July policy meetings, but many thought that these early bigger hikes would allow room to pause later in the year to assess the effects of that policy tightening. The dollar also lost some demand yesterday when data confirmed that the US economy contracted in the first quarter at an annual rate of 1.5%, hindered by a drop in exports and supply chain issues.

Economic Calendar

12.35 EUR ECB’s Lane Speech
13.30 USD Core consumer expenditure
15.00 USD Michigan consumer sentiment index