Has the Pound consolidated its position or seen its recovery stalled of late??
| GBP
| The charts show GBP v USD is up 3% in the last month with GBP v EUR unchanged. However, since bouncing back from the 'dip' 3-weeks ago, both pairs have barely moved the last 2-weeks. So why has this happened?
Well firstly to say a reality of calm is a good thing, especially with what we have faced so far in 2025, so long may that continue (it won't).
There is no doubt that 3-weeks ago, GBP was oversold versus the majors and so a pullback was always on the cards. Also a consolidation period tends to be seen as positive, a platform to either steady the ship or preparation to fly.
But recovering back to the mid-market highs of 1.20 was never going to happen (at least this soon anyway). The Euro is no longer the same currency it has been since covid being the major reason for this. The other is what is happening this week..
The Bank of England (BoE) are expected to cut rates by 25bp (already priced in) this Thursday. However, there is a 50% chance they may announce a further cut next month (maybe priced in). Any deviation will create volatility in the Pound.
The Fed too will play their part this week and beyond, as whatever the US central bank does, the UK central bank tends to follow at some point (and they are expected to start cutting rates imminently). A lower interest rate means a lower currency valuation, so both £ & $ will decrease when cuts occur, just as we have seen with the € & EU.
Comparing this then to the ECB who have either finished or are about to finish its interest rate cutting cycle (half the rates as the UK & US currently), you can see why GBP hasn't continued to climb after the recent recovery period.
EUR The Euro has so far ridden through the disappointing news earlier today of Friedrich Merz failing to get the votes required to become Germany's next chancellor (by 6 votes). It means financial markets see this as a minor setback only and that Germany's new era of investment is still on track.
The single currency has given away some ground of late, correlating to the stronger performance of the US stock market, but remains very strong on the whole and well positioned for more gains. With no economic data being released this week, it's the 'sitting duck' role for the Euro.
USD Has Donald Trump done enough to 'twist the arm' of the Fed?
I doubt it this time, but I fully believe he will get what he wants sooner rather than later. So financial markets will be waiting on fresh impetus of trade talks hopefully this week to restart some market volatility after what has now been an extended period of consolidation. |
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