Sterling and euro reached new one-week highs on Friday, as a result of the Bank of England’s efforts to calm the markets and the European Central Bank’s hawkish signals.
As the BoE entered the debt market to buy gilts for a second day on Thursday, lifting UK rates, the British pound was on track for its best week against the US dollar in two and a half years.
The sharp consumer inflation statistics from Germany and the Netherlands also proved as a reminder that the ECB, BoE, and other central banks still have work to do. Also, the figure for the larger 19-country euro zone is due later on Friday.
Early in the Asian trading day, the pound reached $1.1222, coming very close to wiping out all of the severe losses incurred as a result of the so-called short budget presented by the new administration last Friday.
Later in the day, it gave some of those gains back, but it was still up 0.12% at $1.11325 at 05:22 GMT, on course to increase 2.61% this week, the most since March 2020. This persists despite hitting a record low of $1.0327 on Monday.
Sean Callow, a strategist at Westpac in Sydney, said, “The recovery in cable (the sterling-dollar rate) is really eye-catching.”
Given that UK yields are expected to remain high for a while, it makes some sense that short positions would be discouraged. However, considering that the UK already has very big current account deficits, Westpac doesn’t believe that sterling’s prospects are very bright.
After reaching a high of $0.9844 earlier, the euro prevailed roughly constant at $0.98145.
The shared currency has recovered from a new two-decade low of $0.9528 on Monday and is on track to post a 1.32% weekly gain, which would be its best performance in four months.
Nevertheless, during the Asian session, liquidity among European currencies was extremely low.
