Sterling Firms Ahead of Reeves & Bailey Speeches
- Jan 29
- 2 min read
Updated: Feb 10
GBP : Pound up against the euro and dollar
In an interview with Bloomberg yesterday, UK Prime Minister Keir Starmer suggested improved trade relations with the US, which helped the pound gain ground against its major counterparts overnight. We already have a "huge amount of trade" between our two nations, and the base is there for even "better trading relations," according to Starmer. Starmer's upbeat remarks about trade relations with the US have allayed concerns that Trump may threaten to impose tariffs on the UK. Regarding the economic future, Starmer stated that "growth" is our government's top objective and that the economy is rapidly approaching a "turnaround." Investors will be watching Chancellor of the Exchequer Rachel Reeves's address this morning for additional clues about the state of the economy.
She is anticipated to present fresh ideas for implementing the Oxford-Cambridge Growth Corridor, which will strengthen the British economy. By 2035, the development is predicted to increase the UK economy by up to £78 billion, according to the agency.
EUR : Euro currently driven by US events
The possibility of tariffs and tech news are two US topics that continue to influence the Euro. A cautious Fed today and a dovish-leaning ECB tomorrow are not expected to cause a significant EUR/USD recovery, according to the consensus.
Regarding EUR/USD, it is believed that by the end of the week, the currency pair won't move much from its current position. Instead of anticipating a comeback above $1.0500, the markets believe the risks are biased toward a decline below $1.0400.
USD : Limited risk of an FOMC dovish tilt today
It is not expected that today's FOMC meeting will have a significant impact on the market. It's believed that in order to support additional rate decreases, the Fed must witness severe economic weakness and decreased inflation. Right now, wages and the labor market are slowly cooling down, but not enough to start easing again. The prerequisites for a cut won't be met until June, based on market prices. Now, a rapid tech-led equity selloff poses a higher danger of dovish repricing than a shift in Fed messaging. Even if December's inflation was marginally lower than anticipated, the robust jobs market should keep Chair Jerome Powell's remarks cautious, and markets might not yet have a catalyst to price in more cuts than the 50 basis points that are presently in the curve by year's end.
The press conference may touch on issues like the tech stock market's volatility, despite yesterday's stabilisation, and the Fed's independence in the face of President Trump's persistent calls for lower interest rates.
The redesigned universal tariff risk justifies the current short-term USD overvaluation, so if US tech stocks have another tranquil day and the Fed continues to be hesitant about easing as we anticipate, the dollar should consolidate gains.
