Sterling supported by BoE Ramsden comments

It has been a quiet week for the markets with GBPEUR, GBPUSD and EURUSD remaining range bound. The pound started the week slightly softer following comments from ECB President Christine Lagarde; however, Deputy Governor of the BoE Dave Ramsden supported the value of the pound with hawkish comments of his own.

Lagarde noted on Monday, that while inflation was gradually approaching the central bank’s targets, the ECB remains dedicated to maintaining its current policy measure for the foreseeable. These comments massively downplay the prospect of an interest rate cut in April and have therefore lend support to the value of the euro against both the dollar and pound.

Dave Ramsden indicated on Tuesday that the BoE would also maintain it’s ‘higher for longer’ stance, so no change is expected from the UK either. The lack of change or expected change in interest rates is leading to exchange rates remaining static.

Next week’s budget announcement from the UK Government could change that. The conservative party currently behind in the polls during an election year, may announce widespread tax cuts to gain support from the electorate.

UK inflation remains sticky at 4% and the BoE will watch the budget tentatively. Widespread tax-cuts could risk spiralling inflation out of control again and any move from the Government that is seen as reckless, could pile pressure on sterling. The Liz Truss – Kwasi Kwarteng budget caused GBPEUR to drop from 1.12 – 1.04 in a matter of days.

The next key announcements come from the US and Eurozone. US GDP data is released later today and is expected to show no change at 3.3%. This would be a positive for the greenback with the Eurozone and UK economies flatlining.

German Retail Sales are expected to drop 1.5% which could put pressure once again on the euro as it supports predictions that Germany is heading for a recession.

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