Towards the end of last week we saw some considerable volatility within the currency markets as data releases, mostly US based resulted in some big swings for a number of currency pairs.
Sterling exchange rates, particularly cable (GBP/USD) saw price changes of over 1% towards the close of the trading day as the Dollar weakened across the board of major currency pairs.
There has been more of a risk-on attitude within the markets owing to expectations that US interest rates may not be hiked much higher, after data released on Friday showed a slowdown in the US economy. With inflation levels tailing off within many major economies and data released on Friday showing a slowdown in the US Services sector, there is now a chance that there will be a slowdown in interest hikes from the Fed and perhaps other central banks also.
Sterling benefited from the news and has climbed from 1.1850 up to 1.2200 from Friday to Monday afternoon.
As the US Dollar is a safe haven currency and usually strengthens during times of market uncertainty, the opposite is true when there is a more risk on attitude within the currency markets.
GBP/EUR on the other hand has been less volatile although yesterday morning the pair tested 1.1400 yesterday which is a level GBP/EUR hasn’t traded above since the 21st of December.
The next opportunity for the Bank of England, the European Central Bank and the Fed Reserve to amend interest rates will be next month so in the meantime, it’s worth following guidance from the banks as they may offer hints and forward guidance on their plans. Any major hints at changes can impact exchange rates and at the moment the expectation is for all three to hike interest rates.
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