GBPEUR is trading above 1.18 this morning, arguably based on the notion that “interest rates in the UK will rise well ahead of those in the Eurozone”. Following the Monetary Policy Meeting (MPC) meeting last week, The Bank of England (BoE) “raised inflation forecasts and effectively endorsed market expectations for an interest rate rise in 2022”. It is clear that Sterling has benefited in the market since the BoE gave their hawkish outlook last Thursday. Given that the UK central bank now expects inflation to top 4% this year, investors are confident some level of policy tightening may be necessary, and thus are putting their faith in Sterling.
A strong demand for the US Dollar amid rising US Treasury yields kept EURUSD on the backfoot yesterday, forcing the pair closer to the 1.17 handle. The US 10-year benchmark Treasury yields “edged higher at 1.30%, with more than 1% gains on Monday”, and the US Dollar Index (DXY) “reclaimed its supremacy and stood strong” close to 93.00. This move to the upside is rooted in the better-than-expected US data release on Friday – most notably, Non-Farm Payrolls adding 934K jobs in the month of July, compared to a forecast of 870K. With this said, given the Eurozone releases due this morning, conditions for the Euro could look to improve.
After dropping into the 1.38 range, GBPUSD traded rather flat on Monday. Cable opened the week at 1.3865 and closed at 1.3847.
GBPEUR attempted to push higher on the day, capitalizing on a struggling Euro. The pair opened at 1.1793 and closed at 1.1791.
EURUSD on the other hand attempted to cap its losses as a Dollar bid kept rates low. The pair started the session at 1.1758 and closed at 1.1743.
On the data front, at 10:00 the Eurozone and Germany will release their ZEW Economic Sentiment Index’s for August.