Pound is still defensive due to its lack of faith in the UK.
Due to a lack of faith in the UK’s fundamentals and anticipation of a dovish policy from the Bank of England, the pound faltered on Wednesday (BoE). The exchange rate between the pound and the dollar (GBP/USD) and the euro (GBP/EUR) fell to lows at 1.2270 and 1.2250, respectively.
amid the ECB’s aggressive attitude, the euro gains.
With anticipation of a more hawkish approach from the European Central Bank (ECB) on Thursday, the Pound to Euro (GBP/EUR) exchange rate fell further to 4-month lows around 1.1225. In accordance with expectations, the Federal Reserve raised interest rates by 25 basis points to 4.75%.
Following Powell’s remarks, the dollar declines
Even while markets were more optimistic that rates will be cut later in the year, Fed Chair Powell warned that more rate rises were expected but also hinted that disinflation was under way. As a result, the dollar saw significant losses, and the euro to dollar exchange rate (EUR/USD) shot up to nine-month highs above 1.1000.
responses of the market to Powell’s remarks
Powell’s remarks, according to Ray Attrill, head of FX strategy at National Australia Bank (NAB), did not fundamentally challenge the market’s consensus. The market expectations are uncertain in the eyes of Rabobank, which predicts that the Fed will likely maintain rates steady until 2024. The dovish market response was highlighted by Nordea, who also said that Powell’s justifications encouraged lower interest rates and increased stock prices, which resulted in looser financial circumstances.
Outlook for EUR/GBP
A hawkish surprise from the Monetary Policy Committee (MPC) might provide the pound a lift in the near future, according to Credit Suisse, while ING thinks that there is not much barrier for the EUR/USD right now until the 1.12 level. The EUR/GBP exchange rate may close the quarter at 0.89 but later in the year move up to the 0.90/91 region, according to Nordea. They also point out that the MPC has become more fragmented and unpredictable, which may tilt the risk equation in favor of a less significant change than anticipated.