Analysis / Daily / Finance / forex

Sterling on the Move as BoE Hawk Says Prepare for Rate Rise

One Pound

US equity markets were little changed at the closing bell and the dollar remained mixed as optimism surrounding a possible Greek deal this week has been offset by hawkish comments from Fed Governor Powell. He suggested that the odds of a rate hike in September were 50-50 and said he also expects a second hike in December, providing the economy develops as forecast. US data impulses were mixed, US durable goods surprised to the downside, ex. transport was in-line but both components saw notable downward revisions. This morning has seen the dollar slide against sterling as bullish comments from a BoE member regarding rate rises in the UK saw sterling bid. Against the single currency we continue to see the currency pair trade around the $1.12 handle, with volatility expected later this week when a Greek deal may finally happen – or not.

euro

Greece appears to be nearing a deal with creditors. Stocks and Greek bonds are soaring as relieved investors pile in. So why is the euro falling? Many investors believe a Greek exit would be a disaster for the currency, at least in the short term, by reawakening questions about a wider eurozone breakup. But the currency’s behavior has been remarkably consistent. As the Greece crisis intensified over recent weeks—and stocks tumbled—the euro has actually been rising. Now Athens and its creditors say they’re nearing a deal, and the euro has fallen more than 1% against the dollar Tuesday to touch an intraday low of $1.1218. It’s also down against the pound and the yen. The moves suggest that the euro is unlikely to benefit from any Greek resolution. Many analysts argue that the long-running Greece crisis has had little impact on the euro exchange rate, at least directly. Investors have largely been reluctant to speculate on the outcome of the unpredictable political discussions. But others argue Greece has had a powerful indirect effect, hinging on the euro’s role in so-called “carry trades.” The borrowed euros are typically used to fund bets in riskier markets. If risks rise in financial markets (as they did while Greek talks were deadlocked), investors tend to exit these bets. That causes the euro to rise as the borrowed money comes home. But if risks fall, so does the euro. If a final Greek deal does materialise, the euro could fall quite a bit further.

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US equity markets were little changed at the closing bell and the dollar remained mixed as optimism surrounding a possible Greek deal this week has been offset by hawkish comments from Fed Governor Powell. He suggested that the odds of a rate hike in September were 50-50 and said he also expects a second hike in December, providing the economy develops as forecast. US data impulses were mixed, US durable goods surprised to the downside, ex. transport was in-line but both components saw notable downward revisions. This morning has seen the dollar slide against sterling as bullish comments from a BoE member regarding rate rises in the UK saw sterling bid. Against the single currency we continue to see the currency pair trade around the $1.12 handle, with volatility expected later this week when a Greek deal may finally happen – or not.

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