GBP:?The British Pound started the new week on a soft footing and has fallen against the majority of G10 counterparts but strategists at Goldman Sachs and other analysts say the UK currency can continue to outperform. In fact, Sterling's widespread declines look to be a retracement of some of last week's dominance: it was a strong week for the UK currency that included a 1% advance against the Euro – making for the biggest weekly advance since February. Moreover, Sterling?rallied 0.8% against the Dollar last week, a gain that would have been larger were it not for the unexpectedly strong U.S. jobs report released Friday that prompted a sharp retracement. Ultimately, the Pound remains one of 2023's best-performing currencies, held aloft by expectations for further interest rate hikes from the Bank of England, an expectation that keeps UK bond yields elevated relative to those in other key trading areas.
EUR:?The Euro mustered some strength and held its ground this morning despite German factory orders falling unexpectedly in April by 0.4% on the previous month. On the year, orders were down 9.9% in April following an 11.2% fall the month before. This further highlights the difficulties Europe’s largest economy is facing after it endured the first recession since the pandemic over the winter. However, unlike the Fed, the European Central Bank is almost certain to lift its interest rates next week, with President Christine Lagarde on Monday stating that it was too early to call a peak in core inflation despite "signs of moderation." Moving forward, hawkish ECB speak continues to favour further rate hikes, although this view appears to be in contrast to some loss of momentum in economic fundamentals in the region.
USD:?The dollar languished well below last week's 2 ? month highs this morning after yesterday’s unexpectedly soft U.S. services data firmed up expectations for a rate pause at the Federal Reserve's meeting next week. In fact, the dollar has seen some volatility over the last few days as traders try to work out what the Federal Reserve will decide in terms of interest rates at next week’s meeting. Friday’s jobs report only muddied the waters, as the blowout payrolls number suggested room for the Fed to hike once more but the unemployment rate rose and the slowdown in the growth of average wages pointed in the other direction. Moreover, the unexpectedly soft U.S. services data hit the dollar as it firmed up expectations for a rate pause after a more than year-long tightening cycle.
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