Sterling Gains As Eurozone Outlook Fears Grow
The Euro came under pressure yesterday as surging gas prices threaten to trip the Eurozone economy into recession later this year and in turn, limit or completely halt the European Central Bank’s decision to raise interest rates.
The repricing was triggered by another squeeze on gas supply from Russia, spiking prices for the Eurozone, in retaliation for the continuing sanctions being placed on them. Markets are now predicting a lesser basis point hike from the European Central Bank (ECB) as fears of Eurozone stagflation increase.
The fading expectations of a rate hike re-adjusted Euro demand lower with Pound Sterling being one of the major benefactors from the shift in short-term sentiment. A number of analysts are now also considering the prospect of the Euro falling to parity against the US Dollar
In level terms, the softer tone to the euro sees EUR/USD open this morning just below 1.04, having been as low as 1.035 yesterday. The GBP/EUR is trading back up at 1.1750, having started yesterday just above 1.16. Cable (GBP/USD) continues to straddle at $1.22 with the US currency still holding firm due to risk off trading conditions.
Datawise and ahead today, a relatively quiet data schedule on both sides of the Atlantic. In the Eurozone, industrial production (March) is forecast to fall by 2%, as German industry, in particular, remains hamstrung by supply chain issues. In the US, the Michigan measure of consumer sentiment (May) is due. Speeches from a number of central bankers will also be of interest but are not expected to impact the market too much.