Currency has a firm tone in global currency markets

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The British pound (GBP / USD) hit 7-week highs above 1.3500 at the end of 2021 and traded just above that level on Tuesday despite a firm US dollar.

The exchange rate of the British pound against the euro (GBP / EUR) recorded a new 22-month high just above 1.1950.

Global risk appetite grows, 2022 optimism intact

Global risk conditions held up into early 2022 with further gains on Wall Street as the S&P 500 Index set a new record.

Markets are attempting to examine Omicron’s current stresses in the hope that reduced risks of severe infection and high immunity rates will reduce the need for further restrictions.

Britain’s FTSE 100 index opened more than 1.0% higher to a new 22-month high after Monday’s market holiday.

The pound tends to do well when the appetite for global risk continues.

Hedge funds cut short sterling positions

COT data released by the CFTC saw short positions on the British pound drop to just under 51,000 contracts in the past week, down from nearly 58,000 the week before, the largest short position since October 2019.

bannerMUFG commented; “The easing of these positions probably played a role in the sterling outperformance during the holiday season.”

There is still a substantial short position which will maintain the risk of forced short hedging in the event of a change in sentiment and further gains of the pound in the spot markets.

MUFG is still cautious about the possibility of further sterling gains; “The market’s view on a low final rate for the BoE’s bull cycle will make it difficult for the pound to continue to extend its lead in the near term, especially if the position adjustment during the holiday period does not repeat itself. “

US employment data due Friday

There are strong expectations that the Federal Reserve will tighten monetary policy this year with an interest rate hike possibly as early as March following more hawkish rhetoric from Fed officials.

The US jobs report will be a key target for markets which are now fully assessed for a rise at the May FOMC meeting. There are also other US releases and comments from Fed speakers.

HSBC tickets; “An impression of 400,000 or more would likely keep the Fed on track to raise rates soon after the cut ends. Ahead of NFP, we’ll also get the usual clues from the ADP and ISM surveys. speakers from the Fed, including Bullard, Daly and Bostic.

The bank adds; “The minutes of the key FOMC meeting in December 2021 will be released on Wednesday.”

DBS Bank expects GBP / USD to trade lower in 2022; “In 2022, the BoE’s rate hike expectations will likely be offset by earlier calls for Fed hikes and Brexit risks.”


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