US Dollar Driven By Hawkish Fed (EUR/USD), Pound Sterling Struggled Throughout August (EUR/GBP, GBP/AUD)

Forex: Market Is Dependent On Fed's Shortly Message

Summary:

  • The USD strengthened by a hawkish Fed.
  • GBP struggled in August.

Euro value declined against USD on Thursday

The market is reflecting mixed signals for this currency pair. Thursday sees a decline in the value of the Euro as markets are swept by a steadfast US Dollar following additional hawkish remarks from Fed speakers. Despite the market leaning toward a 75 basis-point increase at the European Central Bank (ECB) meeting next week as a result of yesterday's higher than expected CPI, the EUR/USD was unable to gain traction.

The US dollar's ascent is unabated, and it appears that it will soon reach highs last seen in 2002 as the preferred safety play. This week, a new wave of risk-off trading sent USD pairings higher and equity markets lower across a number of markets. US Treasury yields have reached multi-year highs as US interest rate expectations continue to rise.

US Dollar Driven By Hawkish Fed (EUR/USD), Pound Sterling Struggled Throughout August (EUR/GBP, GBP/AUD) - 1 EUR/USD Price Chart

EUR/GBP touching June lows

The market is reflecting bullish signals for this currency pair. One analyst said there is little reason to expect an improvement over the upcoming weeks or months as the value of the pound relative to the euro has dropped substantially over the past few days and is currently at levels last seen in June. The Pound suffered in August, with analysts attributing its poor performance to worries that the UK's debt load will rise as the next administration tries to mitigate the effects of the cost of living problem. This occurs as the Bank of England raises interest rates, driving up the yield paid on gilts, the name for UK government debt. The Bank of England gave historically low interest rates during the Covid crisis and actively purchased government debt as part of its quantitative easing program. As a result, the government was able to increase borrowing without any problems. However, the Bank will now actively sell government debt and may raise rates by an additional 50 basis points in September, significantly restricting the government's ability to borrow money as the nation grapples with yet another crisis.

US Dollar Driven By Hawkish Fed (EUR/USD), Pound Sterling Struggled Throughout August (EUR/GBP, GBP/AUD) - 2

EUR/GBP Price Chart

GBP/AUD

Despite a great August making the Australian Dollar one of the better performing currencies of 2022, experts at investment bank Goldman Sachs said they remain concerned on the currency on a "tactical basis." The announcement that one of China's major cities has been placed on lockdown as the government of the nation pursues a "zero covid" strategy to combat the coronavirus raises doubts about the near-term prospects for Australia's top export market.

US Dollar Driven By Hawkish Fed (EUR/USD), Pound Sterling Struggled Throughout August (EUR/GBP, GBP/AUD) - 3 GBP/AUD Price Chart

Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com

Forex: Market Is Dependent On Fed's Shortly Message

Rebecca Duthie

Remote Editor and writer Intern
FXMAG.COM

Rebecca has a bachelors degree in Investment Management, a Post Graduate Diploma in Financial Planning and is currently enrolled in a Masters program in International Management with a Specialization in International Finance.