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Pound inches down vs dollar, euro before ECB rate decision
Global Banking & Finance Review®
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By Lucy Raitano
LONDON (Reuters) – The British pound softened versus the U.S. dollar and the euro on Thursday as a gloomy economic outlook and political worries weighed on the currency while the market turned its focus to an imminent announcement from the European Central Bank.
By 0842 the pound was down 0.1% against the dollar at $1.2524, having regained ground from earlier in trading when it was down about 0.32% against the dollar at $1.2495.
The British unit also weakened against a stronger euro, falling 0.12% to 85.535 pence.
Simon Harvey, head of FX Analysis at Monex Europe, said he will be focusing on the euro/sterling cross today ahead of the ECB’s announcement due at 1145 GMT.
“We have the Bank of England that is naturally going to have to slow its hiking profile given economic conditions and the ECB that is about to start tightening monetary policy with the risk it is going to have to be quicker in the short term than the market is currently pricing in,” he said.
The ECB’s meeting and policy announcement is top of the priority list for the day, with the bank expected to say that it will end its long-running asset purchase programme at the end of June and to promise a rate hike for July as it battles record-high inflation.
Political uncertainty also still hangs over the British unit after Prime Minister Boris Johnson won a confidence vote earlier this week – but not as comfortably as he might have hoped. The vote in effect reflected a significant revolt against his leadership within his own Conservative party.
“There is a case of waiting to see, markets are very much hesitant to price up political risk. We still have some Brexit risk and we also have some stability risk at play, so there is a direct impact on spot markets at the moment,” said Harvey.
Uncertainty over the longevity of his position and what that means for future fiscal policy and the future of the Northern Ireland protocol are weighing on sterling.
(Reporting by Lucy Raitano; Editing by Saikat Chatterjee and Hugh Lawson)
Foreign exchange refers to the global marketplace for trading national currencies against one another. It is essential for international trade and investment, allowing businesses and individuals to convert one currency into another.
Monetary policy is the process by which a central bank manages the supply of money, interest rates, and inflation to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity.
Financial markets are platforms where buyers and sellers engage in the trade of assets such as stocks, bonds, currencies, and derivatives. They play a crucial role in the economy by facilitating capital allocation and price discovery.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by the Consumer Price Index (CPI) or Producer Price Index (PPI).
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