By James Caley
Currency markets this week are being led by global developments rather than economic data. The main focus remains comments from Donald Trump and ongoing tensions around the Strait of Hormuz. With very little data scheduled, these headlines are setting the direction, particularly through their impact on oil prices and overall market confidence.
The key move so far this month has been a weaker US Dollar, with both Sterling and the Euro gaining ground. This hasn’t been driven by one single factor, but more a combination of shifting expectations and positioning. Earlier demand for the Dollar linked to global uncertainty has eased, while markets have also started to question how much further support the Dollar has at current levels. As a result, GBPUSD has moved higher since the start of April, with EURUSD following a similar path.
Another factor supporting Sterling has been the shift in interest rate expectations. Earlier spikes in oil prices pushed up inflation concerns, which has reduced the likelihood of rate cuts from the Bank of England. In some cases, markets have even started to consider whether rates may need to stay higher for longer if inflation proves persistent. Higher interest rates tend to attract investment into a currency, and this change in expectations has helped support the Pound.
For Sterling against the Euro, it has been much steadier. GBPEUR has edged slightly higher but without any sharp movement. Both currencies have broadly benefited from the softer Dollar, so there has not been a strong reason for this pair to move significantly in either direction.
There is very little on the data side to shift this trend. The main UK release is GDP for February, due at 07:00am. This could cause some short term movement for the Pound, but unless the figure is well away from expectations, it is unlikely to outweigh the current focus on global events.
Overall, this is a market being driven by headlines rather than fundamentals. That can lead to quick swings in direction. If the situation in the Middle East stabilises further, Sterling may continue to hold its recent gains against the Dollar. If tensions pick up again, that could quickly reverse. Taking advantage of the recent improvement may be worth considering rather than waiting in what remains an uncertain environment.