Currency Note

Pound begins recovery due to positive market mood

By Alex Bennett May 26th, 2022

The pound has begun to recover against the euro and the dollar this morning. This comes after poor economic data released on Tuesday fuelled worries about the state of the UK economy, causing sterling to weaken.

Yesterday, Bank of England official, Huw Pill, said that he thinks more interest rate hikes are needed. However, he added that the central bank is conscious that “too much” action would leave the economy stuck in a recession.

The details of Sue Gray’s ‘partygate’ report were released yesterday, revealing the nature of the parties that took place at Downing Street during the pandemic. Despite this, Conservative MPs have said that they don’t want the Prime Minister to resign.

Chancellor Rishi Sunak is expected to speak later, announcing a new plan to support households with rising energy costs this winter.

Across the pond, Federal Reserve meeting minutes were released yesterday, confirming that the central bank could take a more cautious approach to interest rates later this year.

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GBP: UK car production falls year-on-year

The pound has strengthened against the euro and the dollar this morning, recovering from losses seen at the beginning of the week.

A more positive market mood has boosted sterling, which has been brought about by news that China is easing lockdown restrictions. Stock markets have risen higher and as the pound typically moves with the broader markets, it has also strengthened.

This morning, data showed that car production in the UK fell by 11.3% in April compared to last year, amid ongoing chip shortages and supply chain issues, which have been worsened by the Ukraine crisis.

GBP/USD chart over past year

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EUR: ECB Lane to speak tomorrow

The euro is still trading around strong levels against the dollar this morning after the European Central Bank confirmed that an interest rate hike will take place in July.

Tomorrow, the ECB’s Chief Economist, Philip Lane, will speak and the markets will be listening for any comments surrounding upcoming interest rates.

It’s a quiet day for European data releases, however, we can expect data on loans to households and companies to be released tomorrow morning.

USD: Fed minutes suggest more caution later this year

The dollar is slightly weaker against a basket of currencies following the release of the Federal Reserve’s meeting minutes yesterday.

The minutes confirmed that policymakers could rethink their approach to monetary policy depending on economic conditions in the months ahead.

Despite the Fed’s aggressive stance to interest rates and an expected 50 basis point hike in June and July, it’s thought that a more cautious stance will be taken from September, especially if inflation begins to subside.

GDP figures are expected for the US later today.

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