Sterling Pulls Back as US Dollar Picks Up Against FX Majors
Sterling pulled back from uptrend as US dollar picked up against its major trading pairs in the forex markets on Friday. The dollar index, DXY, is back above 104 again as European currencies soften over reduced optimism.
The latest reports suggest a US government shutdown this weekend has been averted as the Democrats in the Senate prepare to pass the House bill agreed earlier this week.
At the same time, Sterling dipped to $1.29 after fresh data revealed that the UK economy unexpectedly contracted by 0.1% in January, missing market forecasts of a 0.1% expansion.
Last month, the Bank of England downgraded its first-quarter growth forecast to 0.1%, down from the 0.4% projected in November. Investors now turn their attention to the BoE’s monetary policy decision next week, where interest rates are expected to remain steady at 4.5%.
Pound strength had eclipsed the greenback due to concerns over the US economy and the impact of escalating tariffs. EUR/USD is drifting, ING analyst Chris Turner said in note, saying FX options market had been warning about last week’s upside spike.
However, the latest indications suggest EUR/USD upside appetite is fading, saying that one month EUR/USD risk reversal has softened quite a lot.
European Central Bank President Christine Lagarde tells BBC that Trump’s policies are “causing a level of uncertainty that we haven’t seen in a long time”. “Real trade war” would have “severe consequences for growth and prices”.
U.S. Governing Council (GC) member Francois Villeroy de Galhau says the Trump Administration sees economics like a global Monopoly game.
Also, the Japanese yen depreciated past 148 per dollar on Friday, reversing gains from the previous session as escalating global trade tensions bolstered the dollar against major currencies.
US President Donald Trump reaffirmed plans to impose reciprocal tariffs on global trading partners, set to take effect on April 2.
Despite the recent pullback, the yen remains near its strongest levels in over five months, underpinned by expectations that the Bank of Japan will continue raising interest rates this year.
Earlier this week, Japanese firms agreed to significant wage hikes for a third consecutive year, aiming to help workers cope with inflation and address labor shortages.
Higher wages are expected to boost consumer spending, fuel inflation, and provide the BOJ with more room for future rate hikes.
While the central bank is widely expected to hold rates steady next week, policymakers are likely to proceed with further rate increases later this year as inflationary pressures persist. #Sterling Pulls Back as US Dollar Picks Up Against FX Majors#
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