On Friday, the Pound to Dollar (GBP/USD) exchange rate saw significant losses, mostly as a result of the US data that came in considerably better than anticipated.
The exchange rate between the pound and the euro (GBP/EUR) also hit new 4-month lows slightly below 1.1140 before rising to 1.1185 on Monday as the euro also declined.
Dollar increases on significant US job data
The unemployment rate also decreased slightly, from 3.5% to 3.4%, reaching its lowest level since 1969.
The euro to dollar exchange rate (EUR/USD) also experienced significant declines, hitting 2-week lows close to 1.0770.
“We still expect slowing inflation and wage growth would prompt the Fed to suspend their raising cycle in Q2,” MUFG stated regarding the potential for more dollar gains.
Risk Appetite Global More Vulnerable
On Friday, the FTSE 100 index reached a record high, but on Monday, there was a substantial decline.
“Overall, these three trends seem to be pointing mostly at upside risks for the dollar this week,” it was further said.
UK Basic Concerns Continue
Following the most recent Bank of England (BoE) policy decision, there is still a significant lack of confidence in the underlying situation in the UK, along with unfavorable sentiment among investment banks.
Weak productivity, slow investment growth, high inflation, recession conditions (although at a less severe pace than previously signaled by the Bank), and a current account deficit are all expected to put pressure on the pound this year, according to Rabobank.
The BoE decision provides further information about the characteristics of the UK economy, which is still constrained by structural issues, according to Bank of America (BoA), which claims that the central bank’s position shows UK fragility.
BoA continued, “There is thus likely to be a level of understanding that the UK is in a special circumstance when compared to its peers and a quicker reversal in rates (from rises to cuts) than other central banks.
Growth data and BoE speakers will be the two domestic inputs for the pound this week, according to ING, albeit any positive domestic news may be countered by global risk sentiment, geopolitical developments, and a strengthened dollar.