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Sterling dictated by global developments ahead of ECB meeting

Sterling dictated by global developments ahead of ECB meeting

GBP/USD is scaling higher amid falling US Treasury yields, in coordination with the US dollar. The UK announced fresh sanctions on Russian coal and oil imports. Investors are digesting the hawkish Fed minutes, although the central bank divergence theme could remain in play. 

Sterling moves overall were still dominated by global developments with markets waiting for any fresh guidance from the Bank of England. Risk conditions remained more fragile which tended to sap potential currency support and Sterling was unable to hold above 1.3100 against the dollar. 

Sterling did find support near 1.3050 and recovered slightly on Thursday, but domestic and international reservations continued to sap underlying support, especially given reservations over UK domestic demand. Sterling traded below 1.3100 against the dollar with the Euro around 1.1983.

 ECB chief economist Lane stated that it was important not to overreact to the inflation surge, that the bank can’t respond to current high inflation, suggesting that the economics department will not be backing higher interest rates. The Euro peaked close to 1.0940 before drifting lower again amid underlying concerns over the Euro-zone outlook.

Ukraine developments will continue to be monitored closely in the short term and there will be an element of caution ahead of next week’s ECB policy meeting.

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