Pound Recovering on Widening BOE Split

 

USD

The U.S. dollar was mostly flat overnight but remains in overall favorable ranges. Indeed, the Bloomberg Dollar Spot index is at its highest level in three months and is looking for its first monthly gain since February.

The dollar’s recent momentum seems to be taking a breather so far today on a lack of risk events. Fairly hawkish comments from a number of Fed officials on Monday and Tuesday backed Janet Yellen’s stance from last Thursday. The only data set for release today is existing home sales at 10 a.m.

Commodity-backed currencies, including the Canadian dollar, are under pressure as the price of oil remains in bear territory. WTI remains firmly under $45 a barrel.

 

EUR 

The Euro was unchanged overnight and has been unable to recover from its recent fall against the U.S. dollar. The Euro is down nearly one percent over the past week against its American counterpart.

Nevertheless, the common currency sits near its strongest level against the U.S. dollar since November. While the Euro’s run from the spring has taken a breather, we expect the Euro to stay in slightly elevated ranges. The market has already priced in policy tightening from the U.S. Fed but risk and recent European election outcomes have allowed investors to sigh some relief. Therefore, it would take an unforeseen event to drastically cut the Euro’s value.

 

GBP 

The British pound is in full recovery mode this morning after falling over a percent during the last session. The sterling was under pressure yesterday following a dovish speech by Bank of England Governor Mark Carney who stated he was in no rush to raise interest rates anytime soon. The pound fell to a two-month low.

However, the pound has shot back to life in early trading. Bank of England chief economist Andy Haldane said he is leaning towards joining the hawks on the Monetary Policy Committee and considered a vote for a rate increase as early as last month. The comments highlight, again, the growing split among policy makers where three of the eight voting policy makers voted for a rate hike last week.

It is also worth noting that Prime Minister Theresa May still has not been able to come to an agreement with Northern Ireland’s Democratic Unionist Party to form a government.