Spectrum FX Daily Report

GBP:?The British Pound witnessed good two-way price swings yesterday and finally settled with modest intraday gains for the second successive day. In fact, the British Pound got a boost following the release of UK consumer inflation figures. Moreover, against the backdrop of the stronger UK wage growth data released on Tuesday, the stubbornly high inflation should pressure the Bank of England to raise interest rates further. Ultimately, market participants now see over a 90% chance that the Bank of England will hike interest rates by 25-basis points in May before peaking at 5% by September.

EUR:?The Euro has been having a hard time making a convincing move in either direction this week. Following yesterday’s choppy price action, the Euro opened today’s session relatively flat, and the near-term technical outlook fails to provide a clear directional clue. However, the European Central Bank will release the March Monetary Policy Meeting Accounts later in the session, which could provide some needed impetus to the bloc’s single currency. Since that policy meeting, several ECB representatives have stated that they are looking to raise key rates by 25 or 50 basis points in May. Ultimately, investors will be looking carefully at the release of the minutes from the last meeting of the European Central Bank for clues about the policymakers' thinking of the extent of future hikes. Nevertheless, the ECB's publication is unlikely to hint at the size of the next rate hike.

USD:?The U.S. dollar traded in a subdued fashion in early European trade this morning, clinging on to overnight gains with expectations growing that the Federal Reserve will further tighten monetary policy next month. Federal Reserve Bank of New York President John Williams said yesterday that inflation is still at problematic levels and the U.S. central bank will act to lower it. In fact, the Fed is widely expected to deliver a final 25-basis point rate increase in May. Thereafter, the debate starts over whether the U.S. central bank will hold rates steady for the rest of the year or start delivering cuts towards the end 2023 as the largest economy in the world starts to contract. Ultimately, the prevailing cautious mood is likely to continue as we head into the crucial next few weeks of central bank meetings.

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