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Sterling Awaits Budget Details

Sterling Awaits Budget Details


After spiking higher in Asia on Wednesday, Sterling remained vulnerable to a correction in European trading on Wednesday. As the correction continued and the dollar secured some relief, the UK currency dipped to just below 1.4100. The Euro also recovered from 12-month lows below 0.8600.

Bank of England Deputy Governor Broadbent stated that risk for employment was in both directions, but that there was a clear risk that the rate will rise significantly once job-support schemes come to an end. He reiterated that the bank debate surrounding negative interest rates was whether they would be effective.

MPC member Haskel stated that risks to activity are very much on the downside, especially in relation to the February forecasts. The comments from Haskel overall were notably dovish, especially with concerns over debt and insolvency risks. Governor Bailey steered away from significant comments on monetary policy.

The overall reaction was muted, but Sterling remained in a corrective mode as the Euro edged above 1.1627. There were further reports that the UK Chancellor will release stimulus measures in next week’s budget in order to boost economic recovery. Sterling also gained support from the wider strength in global risk appetite. The UK currency traded above 1.4150 against the weak dollar in early Europe with the Euro close to 1.1627.



There was some evidence of month-end dollar demand which helped protect the US currency yesterday, although gains were limited.

The prepared testimony from Federal Reserve (Fed) Chair Powell in his second appearance before Congress was the same as the previous day. Powell reiterated that there would be no early removal of stimulus measures. He insisted that the current pace of bond buying would continue until actual data moves closer to inflation and employment goals. He also noted that there is a lot of slack in the labour market and a long way to go to reach maximum employment.

As far as inflation is concerned, Powell stated that the Fed wanted to see inflation expectations anchored at 2% not below, reinforcing opposition to low inflation.

Fed Governor Brainard stated that shortfalls from maximum employment are the key policy guide and that the current real jobless rate is currently closer to 10%. Brainard also noted that inflation remains very low, although there may be transitory price pressures. Fed Vice Chair Clarida stated that he did not expect sustained upward pressure on inflation. The overall dovish tone sapped dollar support and there was also a fresh move up for commodity currencies.



The Euro is flirting with daily highs around the 1.2180 against the Dollar heading into the European open as bulls look to take back control and aim towards the 1.2200 level amid notable Dollar selling across the board.

Meanwhile, dovish comments made by ECB policymaker Isabel Schnabel have been widely ignored by the Euro markets. Schnabel has stated that the fiscal and monetary policy must not be withdrawn prematurely and went on to comment that the central bank would be monitoring market developments closely, that the Euro area was now much better able to deal with lockdowns than before and that the second lockdown has been much less severe than the first.

As of writing, the Euro currently trades around the 1.2195 mark against its US counterpart. 


Data to watch

08:30 – USD – Prelim GDP

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