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Dollar Slips, Sterling Gains as U.K. Brings Forward Fiscal Plans

The U.S. dollar weakened in the early hours of European trading on Monday, while sterling appreciated on news it was announced that there will be a change in the U.K. will bring forward its tax and spending plan in an effort to calm markets after the uncertainty that has come with the inauguration of the Liz Truss’s new first term as the country’s premier.

At 03:10 Eastern Time (07:10 GMT), the Dollar Index, which measures the greenback’s value against six other currencies, dropped 0.3 percent to 112.828 It has risen nearly 18% in the past year, and is on track for an all-time high in annual gains since data began to be compiled in 1972.

The bulls of the dollar appear to be snoring after last week’s soaring U.S. inflation data, which reinforced bets on an aggressive rate hike coming up during the next FOMC meeting, which is scheduled to begin in early November.

“The core narrative remains that the Fed will want higher real rates for longer to fight the biggest inflation threat since the early 1980s, and the dollar should continue to find good support on dips,” said analysts from ING in an announcement.

In other news, GBP/USD climbed 0.9 percent to 1.1265 following the U.K. Treasury announced early Monday that the Chancellor of the Exchequer Jeremy Hunt will announce new spending and tax plans at the end of the session 2 weeks earlier than originally planned in an attempt to calm markets that had been shaken by his predecessor’s economic plan.

Hunt will issue an announcement later in the morning, only three days after taking over the job, on steps that will “support fiscal sustainability,” the office of Hunt said in the statement. Hunt will then address members of the House of Commons in the afternoon.

The U.K. bond market, and sterling, was shattered by the original plan of the new Premier Liz Truss to fund massive tax cuts by borrowing. The result was an intervention by the Bank of England stepping in to calm the situation, and by announcing an emergency bond buying program that concluded on Friday.

EUR/USD gained 0.3 percent to 0.9746 in advance of the publication of the most recent Italian cost of living index that is expected to increase by 8.9 percent over the course of the month of September which indicates that inflation remains high in the third-largest economy of the Eurozone.

European Central Bank Governing Council member Martins Kazaks has backed a price increase in the amount of 75 basis point in the month of November as well as another increase of 50 to 75 basis points during the last meeting of 2022 in December, based on the outcome of the survey and the future outlook for prices.

“Given the current trend, I don’t see any need to pause after that,” Kazaks declared in an interview with Washington this weekend. “The pace could slow down somewhat, and I would say that we start to use a wider set of instruments to work across the whole yield curve.”

USD/JPY was a little 0.1 percent lower to 148.65 just a hair short of the 32-year low of 148.86 which was hit on Friday with traders sceptical about any the possibility of further intervention, as numerous Japanese officials remained firm in their threats to the market on Monday.

Japan in the last month intervened to buy yen its first time since the year 1998 following that the Bank of Japan maintained ultra-low rates of interest.

USD/AUD was up 0.8 percent in 0.6248, NZD/USD increased by 0.6 percent to 0.5594, and USD/CNY was up 0.1 percent to 7.1992 following Chinese president Xi Jinping said the country is not planning to roll down its zero-COVID policy. an attitude that is at the core of China’s current slowdown in economic growth.

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