Sterling stood at its highest in over a month early this morning, having outperformed its peers after the latest set of policy minutes from the Bank of England was less dovish than expected. The pound climbed as far as $1.5080, while GBP/EUR tested 1.4050, reaching levels not seen since mid-March. Sterling has since eased back to $1.5035, while the common currency remained pinned near the session low. BoE policymakers appeared more focused on the prospect for higher inflation in the minutes, sparking a rally in sterling and a vicious selloff in gilts. The pound’s performance yesterday was its best in about a month and could signal the start of more sustained gains, traders said. Weighed down by the uncertain outcome of the May 7 General Election, Sterling has all but ignored good economic data out of the UK, choosing instead to focus only on the negatives, or mainly soft inflation data. However, as the BOE’s April meeting minutes detailed, policymakers remain cautiously optimistic about the state of the economy, leaving the door open for potential action later this year if the country can sort out its electoral woes.
The euro edged lower against the U.S. dollar this morning, after data showed that the German consumer climate improved less than expected this month and as investors remained cautious ahead of euro zone manufacturing and service sector data due later in the day. EUR/USD hit 1.0692 during late Asian trade, the pair’s lowest since April 21; the pair subsequently consolidated at 1.0707, slipping 0.16%. The pair was likely to find support at 1.0622, the low of April 16 and resistance at 1.0850, the high of April 17. Data earlier showed that the Gfk German consumer climate index ticked up to 10.1 this month from 10.0 in March. Analysts had expected the index to rise to 10.2 in April. The euro also remained under pressure as the Greek government was no closer to reaching an agreement with its euro zone partners and the International Monetary Fund over economic reforms required to access remaining bailout funds, fuelling fears that the country could be forced out of the euro zone. On Tuesday Bloomberg reported that the European Central Bank is considering tighter rules on Greek banks in return for emergency liquidity, adding to pressure on Athens.
The dollar halted a two-day gain as Greece won access to emergency funding, dimming the allure of shifting into U.S. assets. As investors pushed back expectations for higher U.S. interest rates after a recent streak of soft economic data dampened optimism on the country’s recovery, the greenback’s gain has also been capped. It is a very strong signal that the market is not as positive on the dollar anymore, FX strategists comment. The Dollar Spot Index, which tracks the currency against 10 major peers, was down less than 0.1 percent to 1,191.90 as of 5 p.m. New York time. It’s down about 2.5 percent since reaching 1,222.94 on March 13, the highest level in data going back to 2004. The dollar fell 0.1 percent to $1.0725 per euro and rose 0.2 percent to 119.91 yen. Economists say that uncertainty weighs on the dollar. A broader sense of uncertainty and lack of conviction in markets is causing some traders to trim bets on the currency’s strength