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The Pound to Dollar exchange rate remained buoyant near six-month highs on Thursday, while GBP/EUR steadied near 18-month lows, with Sterling helped overall by a confluence of progress in trade talks with the US, a weaker US Dollar and earlier management of the Chinese Renminbi.
GBP/USD was trading near its highest since October 02 in European morning trade after being helped on Wednesday by reports that a tariff agreement with the US may be only three weeks away, broad losses for the US Dollar and constructive central parity fixes for GBP/CNY rate in the first half of the week.
“The rates market is pricing in a very tiny chance of greater than 25bps [rate cut from the Bank of England] on May 8. GBP/USD is still quite elevated and finally outperforming the EUR/USD this week,” says Brad Bechtel, global head of FX at Jefferies, in Wednesday market commentary.
“Perhaps the market is getting excited that the UK will have a trade deal before the EU. The EU vs. US negotiations are likely to be rockier than UK and US but not nearly as bad as US and China. Sounds like a deal on the UK could happen quite soon,” he adds, and suggests "its mostly GBP pushing the DXY lower now."
Above: GBP/USD at daily intervals with Fibonacci retracements and selected moving averages highlighting possible areas of technical support. Click for closer inspection.
GBP/EUR steadied above its recent 18-month lows on Thursday, meanwhile, having fallen alongside the US Dollar on Wednesday when currencies of current account surplus jurisdictions outperformed, with much now set to be determined by an imminent European Central Bank interest rate decision.
“In the current state of things, the FX market is not looking much at short-term rate differentials. If it did, EUR/USD should be trading well below 1.10,” says Francesco Pesole, a strategist at ING.
“While we cannot exclude the possibility that markets can take the opportunity of an ECB cut to take profit in crowded EUR longs, the news from the US is still hitting the dollar, and the highly liquid euro remains in a prime position to benefit from the rotation,” he adds in Thursday market commentary.
GBP/EUR unwound all of its prior rally on Wednesday but was supported by tightened limits enforced in EUR/CNY, and EUR/USD, from Beijing. These prevented EUR/CNY rising above 8.3424 and led to suppressive pushback around 1.1387 in EUR/USD, levels which rose to 8.4119 and 1.1513, respectively, on Thursday.
Above: GBP/EUR at daily intervals with ICE US Dollar Index. Click for closer inspection.