GBP: In a booming market for risky assets last week, the pound edged up against several of its competitors, but it gained significantly versus a struggling euro in the second half. The move comes in response to revisions made by Eurostat to previously released data that suggested that Europe’s economy entered a technical recession in the first quarter. In fact, last week saw the exchange rate between the pound and the euro almost reach a year high. Sterling, however, might potentially find itself stagnating or even declining if the ECB decision on Thursday helps the euro currency regain its footing or if UK economic data causes the market to lose interest in the pound. Looking ahead, market investors will closely monitor the rate of pay increase in April as well as the extent of any economic recovery from a March contraction brought on by labour unrest and consumer restraint.
EUR: When the authorities meet on Thursday, the European Central Bank is anticipated to increase its interest rates by 25 basis points once more. There are still questions, though, about how much higher the ECB will raise rates given that euro area inflation declined more quickly than anticipated in May and that, according to data released last week, the bloc’s economy entered a recession in the first three months of the year. But ECB President Christine Lagarde reiterated last Monday that rates would need to be raised once more and that it was too early to declare a core inflation peak. After a string of 75 and 50-basis point increases, the ECB lowered the rate of its rate increases to 25-basis points at its May meeting. Ultimately, with markets ready for another quarter point rate hike and a similar magnitude increase anticipated to follow in July, the European Central Bank is likely to differ from its American counterpart when it meets a day after the Fed decision.
USD: As market investors are hesitant to take fresh positions at the beginning of a week that includes a policy-setting meeting by the Federal Reserve, the U.S. Dollar traded essentially steady this morning during the early European session, close to multi-week lows. In actuality, the Dollar Index was unchanged at 103.15 after falling about 0.5% the previous week, its biggest weekly decline since mid-April. The Federal Reserve is expected to stop raising interest rates when its two-day meeting is over on Wednesday, according to data that showed the number of Americans filing new unemployment benefits surged to the highest level in more than 112 years last week. This led to a decline in the value of the dollar. At the start of the new week, traders do not appear eager to further depreciate the dollar because tomorrow’s consumer price data for the US could change investor attitude if inflation remains high.
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