It has been a one-way trade for EUR/GBP since the beginning of the year with the cross down 4% YTD. The unwind of a Brexit risk-premium and a favorable vaccine rollout program has been among the key factors behind the persistent slide. That said, the fundamentals continue to support the view that the bearish trend can continue with the UK announcing a roadmap to normalisation, while the EU is heading towards their third Covid wave.
As UK Prime Minister Boris Johnson’s “competence and integrity” have come under increasing scrutiny over the past few days, GBP/USD has held its ground.
That suggests underlying strength for GBP, particularly as the approach of local, regional, and mayoral elections in the UK on May 6 might have been expected to add further political risk for British Pound bulls to contend with.
EUR/USD trades to a fresh monthly high (1.2117) following the limited reaction to the European Central Bank (ECB) meeting, and the exchange rate may attempt to test the February high (1.2243) if the Federal Open Market Committee (FOMC) stays on track to “increase our holdings of Treasury securities by at least $80 billion per month and of agency mortgage-backed securities by at least $40 billion per month.”
It appears the FOMC is in no rush to scale back its emergency measures as the central bank warns of a “transitory rise in inflation above 2 percent,” and the committee may continue to strike dovish forward guidance as most Fed officials see the benchmark interest rate sitting near zero through 2023.
In turn, more of the same from Chairman Jerome Powell and Co. may do little to derail the recent appreciation in EUR/USD as the central bank remains in no rush to scale back its emergency measures, and it remains to be seen if the FOMC will alter the forward guidance at its next quarterly meeting in June as Fed officials are slated to update the Summary of Economic Projections (SEP).
Until then, EUR/USD may attempt to test the February high (1.2243) as it breaks out of the downward trend carried over from the start of the year, and the appreciation in the exchange rate may continue to coincide with the renewed tilt in retail sentiment as the crowding behaviour from 2020 resurfaces.
Daily FX Market Analysis– 28th April 2021
GBP>EUR – 1.1489
GBP>USD – 1.3876
EUR>USD – 1.2079
GBP>CAD – 1.7219
GBP>AUD – 1.7921
GBP>SEK – 11.628
GBP>AED – 5.0959
GBP>HKD – 10.769
GBP>ZAR – 19.993
GBP>CHF – 1.2708
· CAD Retail Sales (MoM)(Feb)
· EUR ECB's President Lagarde speech
· USD Fed Interest Rate Decision
· USD Fed's Monetary Policy Statement
· USD FOMC Press Conference
- EUR/USD Forecast: Euro well-positioned for the Fed, will a dovish Powell unleash the bulls?
- GBP/USD: Offered below 1.3900 ahead of Brexit deal voting, FOMC
- Forex Today: Dollar rises. Gold melts ahead of the all-important Fed decision
- Gold Price Analysis: XAU/USD set to recover towards $1835 – Credit Suisse
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