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Pound recovery continues

Pound recovery continues

The Pound continued its hot streak against the Dollar yesterday with further support as it moved above 1.2500. Other risk-sensitive currencies were also able to secure a further recovery (against USD, CHF and JPY) as equity markets posted gains. Sterling peaked close to 1.2600 against the dollar with further evidence of short covering before fading slightly.

Bank of England Governor Andrew Bailey stated that a very tight labour market in the UK has not been caused by rapid demand growth before reiterating that the economy is facing a very big negative impact on real income (individuals purchasing power). Bailey also stated that the central bank is “ready for more interest rate hikes if needed”. The market still has reservations as to whether the UK would be able to tighten monetary policy (eg rate hikes) significantly and rate hikes from here are liable to lag behind the US and Eurozone. With the single biggest factor in forex pricing being interest rates, this means the Pound will start to lose its “bang for buck” ratio as the others catch up.

This morning equity market gains supported Sterling in holding yesterday’s gains, but there is resistance close to 1.2600 to the Dollar while the Euro found support to beat 1.1835 and rallied to the 1.1765 area. Risk appetite was less confident on Tuesday and Sterling edged lower to the 1.2560 area against the dollar.

Today’s Purchasing Managers Index for the  Eurozone is likely to edge lower as manufacturing is likely to continue to show signs of weakness while services might stay resilient, for now. The UK Purchasing Managers Index seems likely to edge lower as the cost of living bites and consumer confidence falls to all-time lows.

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