The Pound has started the day trending in a tight range against the US Dollar (GBP/USD) and the Euro (GBP/EUR) as markets digest recent developments. Yesterday, stock markets slipped to an eight-month low as investors watched developments in the US.
Markets were concerned about global risks, and reacted to US President Donald Trump’s comments about the Federal Reserve and interest rates. Trump suggested the central bank had ‘gone crazy’ when it came to hikes. He said:
‘I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy.’
Currency markets currently expect one more rate hike in 2018, following three hikes so far this year.
‘Actually, it’s a correction that we’ve been waiting for for a long time, but I really disagree with what the Fed is doing.’
Trump ousted Janet Yellen from the Chair position at the Fed at the start of the year, replacing her with Jerome Powell. It was speculated that Jay Powell’s approach to monetary policy would be similar to that of his predecessor, but perhaps a little more hawkish. The Federal Reserve had previously experienced a long and cautious path to policy normalisation.
Global Reach Chief Economist Eimear Daly commented on yesterday’s market movements, saying:
‘How did currency markets respond to the equity market carnage? It was not the traditional flight to safe-haven currencies, but a “sell US” theme. The trade-weighted Dollar index is currently down 0.34% since yesterday’s open and is lower against seven out of the 10 G10 currencies.’
Today, the VIX volatility index is residing at its highest level since April.
Today the Pound to US Dollar (GBP/USD) exchange rate has been trading between interbank levels of 1.3182 and 1.3245. The Pound to Euro (GBP/EUR) exchange rate has been trading between interbank levels of 1.1409 to 1.1454.