Global interest rates developments and expectations have continued to dominate over the past 24 hours. The dollar was again hurt by expectations of Federal Reserve rate cuts while Sterling gains were hampered by a more cautious outlook from the Bank of England. In contrast, the Norwegian krone strengthened after the central bank increased rates and promised more hikes. Geo-political tensions will remain important on Friday with Iran developments monitored closely
Pound Sterling (GBP)
UK retail sales declined 0.5% in May, matching market expectations as calendar distortions continued. There were also no surprises from the Bank of England as interest rates were held at 0.75%. The bank did express greater reservations over the outlook given concerns over the global growth outlook. Although it still expected interest rate hikes, the cautious tone dampened Sterling support with GBP/USD hitting selling interest above 1.2700 while GBP/EUR settled just below 1.1250. Johnson and Hunt will contest the Conservative Party leadership election, although global risk conditions are liable to dominate Sterling on Friday.
Euro-zone consumer confidence retreated for June, maintaining doubts over the outlook. The latest PMI business sentiment data due on Friday will have a much bigger impact on sentiment towards the economy and currency with a particular focus on the German manufacturing sector given recent weakness. The Euro maintained a solid tone on Thursday with EUR/USD testing above the 1.1300 level, although German yields held near record lows which capped gains. The Swiss currency was boosted by further geo-political tensions and concerns over the Iran situation with the Euro sliding to 22-month lows against the franc.
Following Wednesday’s Fed statement, interest rate considerations remained crucial for global markets with further strong expectations that the US central bank would cut interest rates during the second half of 2019. US data releases were mixed, but benchmark yields remained near 30-month lows which sapped net dollar support. Oil prices were an important focus with prices at 3-week highs following reports that President Trump had approved military action against Iran before changing his mind. Overall, USD/JPY was unable to make significant headway and dipped to 6-month lows near 107.00 before a tentative recovery.
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