FX market take a breather after volatile trading week
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Currencies took a breather on Monday following a very busy few days last week that saw no shortage of volatility.
Last Friday’s US payrolls report provided a bit of relief for the US dollar following its recent sell-off, although the rebound in the greenback was minimal, and the currency has been one of the worst performing majors in the past week. 467,000 net jobs were added in the US economy last month, well above the 150k consensus. While highly impressive, the data doesn’t actually change things too much – the Federal Reserve were already expected to hike interest rates in March and at an aggressive pace during the remainder of 2022. What it does do, however, is suggest that the impact of omicron on the US economy looks likely to be very minimal, and that bodes well for global growth.
Meanwhile, sterling has hovered around the 1.35 level versus the dollar in the past 24 hours or so, retracing part of its gains following Friday’s payrolls report. So far, the ongoing political pressure on Prime Minister Boris Johnson doesn’t appear to be reflected in the pound, which continues to trade near the top of the G10 performance tracker for the year – although it has been overtaken by the euro in the past few sessions. There is a general feeling among investors that even a change of leadership wouldn’t alter the government’s policies too much, if at all, and that provides little reason to fear a deviation from the political status quo. Sterling instead continues to take its cue from central bank expectations. Swap markets are now pricing in the equivalent of five additional 25 basis point hikes from the Bank of England this year, which is providing plenty of reason for investors to long the pound.
There’s little in the way of major economic data releases this week, aside from Thursday’s US inflation print, which will be very closely watched by market participants.
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