Pound Sterling strikes back against the Dollar as ECB decision looms

Cable rates (GBPUSD) climbed to 6-week highs yesterday as the pound continued its comeback following the announcement of Rishi Sunak as the next Prime Minister. The pound also enjoyed improvements against the euro and the Canadian dollar. Gaining more than a 1% against the latter by close of play. Sterling opens the day a little softer.

Political instability can weigh heavy on a currency and the last few weeks have been far from stable in the UK’s political arena.

Jeremy Hunt was re-confirmed as Chancellor of the Exchequer, however, the Halloween budget planned for Monday has been delayed until the 17th of November. The budget will set out how the current administration plan on repairing the country’s public finances.

Sterling strength against the dollar is positive for the UK but analysts are expecting this to be short lived. During yesterday’s session the dollar fell against a basket of currencies as global risk appetite increased. The greenback lost more than 1% against the euro, pound, yen, aussie and kiwi.

The US Federal Reserve have their interest rate decision next Wednesday and a hawkish fed could once again cause risk appetite to tumble. Market commentators are expecting the Fed to hike rates by 75-basis points.

ECB Rate Decision

The European Central Bank have their monitory policy meeting today and will announce their latest position on interest rates this afternoon.

Traditionally the ECB are cautious when it comes to monetary policy. The Bank of England and Fed began raising interest rates far earlier than the ECB. The ECB raised rates by 75 basis points at their last meeting which was the biggest hike on record.

A 75-basis point hike today could lend significant support to the euro, pushing EURGBP and EURUSD higher. The euro climbed to 6-week highs against the dollar yesterday.

Friday is a key day for European economic data with GDP and inflation figures being released, along with consumer confidence.

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