Sterling under pressure with key BoE meet ahead
After a 'bitty' weeks trading against the Euro last week, Sterling finds itself very much on the back-foot against the single currency this week. We saw the pair trade daily blows up and down of 0.5% and this trend looks set to continue with a big economic few days ahead.
Things couldn't have started much worse with the UK posting a miss on GDP data for April. With an already dismal forecast reading of just 0.1% expected, traders sent the £ down once -0.3% was the result figure. It's a significant miss and puts the UK in the lead to be the first major economy facing a recession. The news aids in £-€ rates hitting a 2022 low and the £-$ has now lost 3% in a week.
It puts a lot of pressure on Thursdays BoE meeting where anything but a 0.5% interest rate rise, may see the Pound take a dive. The chances of this happening are less than 10% on money markets. As always, the guidance after the decision will be the main talking point as traders try to place positions on the Pound both near & long term. With the economy slumping, the Bank may be scared of upcoming stagflation and so may speak about the current rate hiking cycle coming to an end (not great for GBP).
To continue with the bad news, global stock markets are down and so with the Pound being a 'high-beta' currency, is being punished by the safe haven currencies, mainly the USD. The Dollar is already back in high demand after the US reported red-hot inflation data for May, signalling the Fed will have to aggressively raise interest rates this coming Wednesday. On top of this, we can expect an injection of market volatility once the EU reacts to the UK's publication to parts of the NI protocol.
At least the weather is nice at last...