Jamie Jemmeson
April 27, 2022

Sterling slides to 21-month lows

Sterling remains fragile ahead of growth data

Sterling continues a downward trend as risk appetite deteriorated again. The UK government borrowing requirement amounted to £18.1bn for March from £26.9bn the previous year, but this was higher than expected and the second-highest March deficit on record. The data overall will maintain concerns over the UK fundamentals, especially as debt interest payments will continue to increase, limiting scope for government fiscal support measures.

Looking to the day ahead, the CBI retail survey will provide one of the first gauges of April sales. Last week’s official data for March saw retail sales decline for the third time in fourth months. There are concerns that the drop also represents the impact of rising inflation, eating into consumers’ spending power.

Single currency at pandemic lows

The Euro dropped to levels last seen in 2017 amidst the risk off mood and diverging monetary policy. There were further concerns surrounding the Ukraine situation with fears over a prolonged conflict as well as an escalation as Germany reversed policy and agreed to send heavy weapons to Ukraine. The tough rhetoric from Russia also increased concerns over potential disruption to Euro-zone energy imports as Russia announced that gas exports to Poland and Bulgaria would be stopped due a refusal to pay in roubles.

European Central Bank head Lagarde is set to speak, but her remarks may not touch on monetary policy.

Risk-off flows continue

Trading across currency markets was once again dominated by safe haven flows on Tuesday which saw the US dollar outperform other major currencies. Investors also cited the China lockdown, ongoing tensions between Russia and Ukraine and a worsening global economic outlook as factors weighing on market sentiment. Subsequently, the US Dollar Index hit fresh multi-month highs breaking above 102.00 with majority of gains posted against the Euro and Pound. Elsewhere, in economic data release on Tuesday, US March Durable Goods posted figures in line with expectations and February’s house Price Index and April Conference Board Consumer Confidence survey data released earlier in the session continued to underpin a stronger Dollar.

Looking ahead to today, it’s a light economic calendar with market sentiment the likely driver of short-term direction once again. Later in the day, pending home sales for March will provide indications as to whether the prospect of higher interest rates may already be starting to impact the US housing market.

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