Another logic-defying, volatile day in currency markets yesterday saw the pound gain ground over the US dollar even as the Federal Reserve played down the prospect of interest rate cuts.
Sterling advanced by more than half a cent on the US dollar during the European session. GBP/EUR traded blows but remained stable, and the euro made small gains over the US dollar.
Jerome Powell’s comments came during an appearance at a roundtable in Amsterdam of all places. Perhaps he thought it amusing to warn against exuberance in a city not exactly famed for its moderation. At any rate, the stroopwafel above his coffee cup had barely begun to melt before his words hit markets.
The US economy remained far too strong to cut interest rates, Powell said. That was hard to argue with, particularly as US PPI had grown by 0.5% in April, beating forecasts of %0.3 and last month’s downwardly revised 0.1%. Asked if interest rates might be cut this year, Powell said he was personally hopeful but ‘We’re going to have to let the data lead us on that’. Surprisingly, the reaction to his words was rather muted, with little direct change evident after he spoke.
Turning to Europe, the ZEW Economic Sentiment Index for Germany climbed to its highest level in over two years in May. The eurozone-wide version of the index also rose to its highest in that time span, driven by improving economic conditions and resurgent trade with Asian markets.
All this came after UK unemployment ticked up in March, while strong wage growth strained the narrative that the Bank of England could cut interest rates as soon as next month.
What should we make of another strange old day? Well, the only thing you can be sure of in currency markets is that you will be surprised. If the events detailed in our currency notes feel detached from everyday life, it’s worth remembering that they can have a much bigger impact on your budget than you may think.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 7898 0541 to get started.
