Spectrum FX Daily Report

GBP:?The British Pound has joined many other currencies in gaining a little ground on the US Dollar as investors cheer firmer UK retail sales growth and the dollar retreats following the latest commentary from the US Federal Reserve. However, the Pound remains under a cloud as far as sentiment is concerned. The British currency has risen quite sharply since September of 2022, on (well-founded) expectations that local rates had further to rise. Now it seems like the Pound is struggling to maintain any momentum even in the face of still-high inflation and the clear prospect of yet-higher interest rates from the Bank of England. Ultimately, while the United Kingdom’s economy does seem to be bettering forecasts, a lot of those forecasts were extremely gloomy in the first place.

EUR:?The Euro continues to be on the back foot as investors fret about growth in the region. In fact, sentiment remained weak in Europe after economic data showed a surprise 0.3% drop in German gross domestic product during the first three months of 2023, a second straight quarterly retreat and thus a recession in the region’s largest economy. And yet despite these signs of slowing growth, the region’s central bankers show no signs of slowing their prolonged aggressive monetary tightening cycles. Looking forward, data releases are relatively light as we move through to the last trading session of the week. However, European Central Bank Chief Economist Philip Lane is due to speak and could provide the bloc’s single currency with a new directional bias.

USD:?The Dollar eased off this morning but remained near a two-month high against its major peers, buoyed by expectations that U.S. interest rates could remain higher for longer. Moreover, debt ceiling negotiations between U.S. President Joe Biden and Kevin McCarthy also continued to cast a shadow over the market mood, though news that the two are closing in on a deal aided investor sentiment and caused the greenback to pause its recent rally. Nevertheless, the dollar benefited from safe haven demand as traders bet that even a default would do little to dent the greenback’s position as the global reserve currency. However, the prospect of a U.S. default bodes poorly for the global economy and this notion seems to have kept traders and investors clear of high-beta (i.e., risk-heavy) currencies.

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