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The best exchange rate for dollar buyers is on tap.
Pound Sterling has risen to its highest level in three years against the Dollar, with gains being linked to another downturn in sentiment towards U.S. assets.
American stocks and the Dollar have weakened in a move that points to global investors moving out of U.S. assets and opting for alternatives.
Europe looks to be a beneficiary of this reallocation, with the Euro rising against the Dollar and most of the other major currencies.
"Confidence in the U.S. dollar fractures and fears of stagflation rise," says Rania Gule, Senior Market Analyst at XS.com.
"Comments from key Fed officials, such as Beth Hammack and Alberto Musalem, clearly point to genuine internal concerns about the future of the U.S. economy amid fragile fiscal and trade policies. When investors sense this internal concern, it often sparks a shift away from U.S. assets toward safer havens," she adds.
The Pound to Dollar exchange rate takes advantage of the USD setback, rising to a high of 1.3468, giving dollar buyers the best exchange rate since March 2022. Gains for Pound Sterling also follow the release of above-consensus inflation data, requiring the Bank of England to remain cautious about cutting interest rates going forward.
UK inflation rose to 3.5% year-on-year in April from 2.6% in March, said the ONS, surpassing estimates for a reading of 3.3%. Looking at the details of the report shows inflation rises were broadbased, meaning there is a real risk that inflation expectations amongst business and consumers de-anchor, ensuring inflation remains above the Bank of England's 2.0% target for an indefinite period.
Although the inflation figures should boost the Pound, we note that the impact has been relatively muted, confirming the global picture remains of primary concern for foreign exchange markets.
"Periods of data silence often serve as a useful gauge of the market’s underlying bias in FX. So far this week, the tendency to add to USD short positions has been clear," says Francesco Pesole, FX Strategist at ING Bank N.V.
Above: GBP/USD at daily intervals with our Week Ahead Forecast annotations. We said in our Monday edition of the Week Ahead that a breakout was due, and that it was likely to the upside.
Analysts are now turning attention to a G7 meeting of finance ministers to be held in Canada, with some speculation that U.S. Trade Secretary Scott Bessent will bring up the issue of currency with partners.
While Bessent has explicitly avoided saying he wants other countries to weaken their currencies, U.S. President Trump has long had issues with trading partners devaluing their currencies.
In short, we know it is one of the Administration's objectives, albeit one that is being kept on the 'low-down' in order to avoid any major selloffs.
USD weakness would be consistent with other countries - particularly Asian ones - raising their pegs and devaluing the USD in the process.
"If current speculation proves accurate – and the US is pushing for stronger trading partner currencies – it could not only prompt sharp appreciation in those currencies but also weigh on the dollar more broadl," says Pesole.
Given these concerns, it is little wonder the Dollar is selling off.
Add to this concerns over the U.S. debt pile and concerns that tariffs will slow the economy, and the USD downcase becomes clearer.