After a strong start to this week’s trade, the U.S. dollar is on the back foot on the final trading day of the week, month, and quarter. The proximate cause for the buck’s weakness is good news overseas: specifically, the EU countries reached an agreement on migration, while the UK’s Q1 GDP was revised up by 10 basis points to 0.2% quarter-over-quarter.
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While the speed of selling has slowed down compared to the early part of the week, emerging market currencies have continued to show weakness in the early hours of Thursday morning. The Thai Baht, Malaysian Ringgit, Chinese yuan, Indonesian Rupiah and Indian Rupee are all trading lower at time of writing.
The U.S. dollar remains among the strongest of currencies out there. Not only is it finding support from safe-haven flows amid the current stock market weakness, but it is also in demand due to the growing disparity between monetary policies in the U.S. against other major economies.
For euro/British pound (EUR/GBP) currency pair traders, there’s been good news and bad news over the last couple of months: The good news is that they’ve had plenty of time to watch the World Cup…and the bad news is that neither bulls nor bears are making any money in the pair!
The British pound/U.S. dollar (GBP/USD) currency pair has remained largely supported after the Bank of England’s policy decision on Thursday. The BoE decided to keep interest rates unchanged last week but the meeting was nonetheless seen as being hawkish since three MPC members voted for a rate hike rather than just the two expected. The pound rallied sharply on that day and it eked out a gain on Friday even if it closed off its best levels.
The U.S. dollar is mixed against major pairs. Safe havens like the Swiss franc, Japanese yen and the euro have gained against the greenback, while the Canadian and New Zealand dollars along with the pound are lower. Strong data in Europe boosted the single currency but the rally was short-lived after the Trump administration announced a review of US-EU trade that could result in a 20% tariff on European car imports.
As is often the case with central bank meetings in the era of communication-as-a-policy-tool, the Bank of England’s “decision” (read: no change) on interest rates was already telegraphed well in advance. But for the always forward-looking markets, there was still plenty to digest from this morning’s BOE statement.
Markets have calmed down since yesterday’s big risk asset selloff, but that doesn’t mean that there’s nothing exciting on the horizon for traders. Namely, tomorrow’s Bank of England meeting should provide some important insights into Mark Carney and company see policy unfolding moving forward.