IFX Market Report: Wednesday 25th May 2022

Monetary policy outlook from the Fed and the ECB have been the main factors this week on currency markets as traders and investors await clues about interest rates hikes from both central banks as they aim to fight inflation.

Atlanta Fed President Raphael Bostic has warned that sharp rate hikes could create “significant economic dislocation,” urging colleagues to “proceed with caution.” This comes as a significant slowdown in growth is expected for this year which could announce more dovish rate hikes.

PMI figures came out as expected for the United States yesterday in manufacturing and market composite PMI, whereas services came out at 53.5 despite a forecast of 55.2. PMI figures remain positive as they all indicate expansion in their industries. Homes sales saw a big decrease in April as higher interest rates take their toll on mortgage applications, with a decrease of -16.6%. Forecasts were expecting 750k new homes sales for April but only 591k were registered.

The UK and the European Union also saw the release of PMI figures yesterday. Despite both economic zones having all industries remaining in expansion, the EU boasted stronger figures which led to a strong decline of GBPEUR at market opening with the rate going from 1.1745 to 1.1668.

The pair saw a steep rise to 1.1742 this morning after ECB President Christine Lagarde predicted yesterday that interest rates in the Eurozone would probably be positive by the end of the third quarter, meaning a rise of 50 basis points that could be implemented as soon as this summer.

Cable stayed stable yesterday, as disappointing PMI figures for the UK were balanced by poor new home sales in the United States. GBPUSD opened at 1.2505 and close slightly under 1.2528.
GBPEUR saw Euro make losses after of Lagarde’s speech despite strong gains in the morning after stronger PMI figures than the United Kingdom. The pair opened at 1.1657 and rose to 1.1742 at 8am this morning as Lagarde’s speech occurred after closing time.

EURUSD remained stable yesterday with the pair opening at 1.0710 and closing at 1.0730.

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