Daily Market Report - 27/04/2022
The Pound is now on course to register a third consecutive monthly decline against the Euro and a fourth consecutive monthly decline against the US Dollar as investors continue to shun the UK currency.
A significant fall in global stock markets is now having implications for foreign exchange markets, with the Pound now under intense pressure and falling against most major currencies, not just safe haven currencies.
The key reasons why the Pound is weakening:
Investors are losing confidence in the Pound
The cost of living crisis in the UK is worsening month by month, consumer confidence is down and a dovish turn from the Bank of England, despite rising inflation means that investors are losing faith in the Pound. Furthermore, economists at Deutsche Bank yesterday warned recession risks in the UK are now rising as a result of the continued squeeze. There is little to no macroeconomic data of note out of the UK this week, so investors will have the MPC’s policy announcement next week front of mind where another 25 basis point rate hike is widely expected.
Market sentiment is low
Market sentiment is falling, with lockdowns in Shanghai and one pending in Beijing (according to reports) investors are reminded of the crash that was seen during the lockdown of 2020. The impact of this was drastic for the Pound, where GBPUSD traded as low as 1.16. This dynamic could be attributed to the Pound's heavy reliance on global investor flows; meaning when times are good and investors are investing, the Pound benefits as capital flows into the UK. When investors are liquidating positions money flows out again, weighing on the GBP.
Other news:
US Dollar rally grows
When market sentiment is low, investors flock to save haven currencies, meaning the Dollar is a major force behind GBP/USD losses and things could get worse: The Fed could be on course to raise rates by over 200 basis points in 2022 alone with their next decision to be announced on 04/05/2022. For now, GDP figures and employment/unemployment data will be the next data release from the US and is due to be announced tomorrow.
ECB Announcement
ECB President Lagarde is due to speak at 11:30am, with insight into possible monetary policy action from the ECB set to be discussed. As well as that, investors will be keeping a keen eye on EU Consumer Confidence data set to be released tomorrow.