Central Bank speculation drives volatility in the currency markets
Written by Canarian Weekly Business
THE past couple of weeks have seen Central Bank speculation become a key catalyst of movement in currency markets, resulting in some notable volatility.
The pound still seemed to come off worst, however, with GBP/EUR sliding from 1.12 to 1.11, with EUR/GBP coming dangerously close to breaching 0.90.
Meanwhile, GBP/USD has tumbled from 1.26 to 1.25, whilst EUR/USD slipped from 1.13 to 1.12.
What’s been happening?
Political uncertainty in the UK continued to weigh on sterling sentiment, over the past couple of weeks, with the rising risk of a no-deal Brexit, unnerving many GBP investors.
Meanwhile, Federal Reserve rate-cut expectations have been a major influence on the US dollar in July, so far, with an upbeat payroll report briefly tempering rate-cut expectations, before dovish comments by Fed Chair Jerome Powell all but confirmed that rates will be lowered, in July.
Finally, trade in the euro has been mixed, over the last couple of weeks, with growing signals from the European Central Bank (ECB) that it will inject fresh stimulus in to the Eurozone this year, limiting the appeal of the single currency.
What do you need to look out for?
Expect to see the pound remain highly sensitive to political developments, through the second half of July, with fears of a no-deal Brexit likely to rise even further, if Boris Johnson becomes the next UK PM, as is widely expected.
For EUR investors, the focus will remain on the ECB, with the euro potentially dropping, if the bank drops any more stimulus hints, at its policy meeting on 25th July.
At the same time, while a rate cut from the Fed this month looks to be mostly priced in, the US dollar could still weaken, if the bank signals plans to cut rates again, by the end of the year.
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