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Mar 07 - 11:55 AM

GBP/USD - COMMENT-Sterling Bid Broadly Intact After ECB Joins Dovish Chorus

By Paul Spirgel  —  Mar 07 - 09:40 AM

GBP/USD held near the upper end of Thursday's 1.2763-1.2724 range, at 1.2752 and sterling is likely to continue to trickle higher after the ECB's dovish hold and Fed's dovish lean contrasted with the more hawkish BoE rate expectations owing to the UK's persistently high inflation.

Today's ECB hold and diverging UK-EU rate spreads have weighed on EUR/GBP, lifting the pound broadly, in the same manner as GBP/USD rallied after Wednesday's below forecast U.S. data and dovish congressional testimony by Fed Chair Jerome Powell.

Though the pound's recent gains are attributable to diverging rate expectations owing to the well-above target UK inflation, it is unlikely the BoE will stray too far afield of rate convention determined by the Fed.

Given the current less-hawkish zeitgeist among developed market central banks, GBP/USD is not likely to move too far afield ahead of upcoming UK CPI on March 20 and the BoE rate announcement on Mar 21.

In a nod to Fed leadership, even if UK CPI fails to resume its decline, the BoE, like Powell, is likely to highlight recent successes in reducing inflation and continuing to keep policy restrictive in order to bring inflation to target, which may temper bullish sterling expectations.

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Source:
Refinitiv IFR Research/Market Commentary

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