The euro showed resilience through the first half of May. Credit: Currencies Direct
Euro
EUR/GBP: Unchanged at £0.86
EUR/USD: Down from $1.17 to $1.16
The euro showed resilience through the first half of May, with the single currency underpinned by rising confidence that the European Central Bank (ECB) will deliver multiple interest rate hikes this year.
However, the euro faltered in the latter half of the month as lacklustre Eurozone economic releases prompted EUR investors to trim their ECB rate hike bets.
Looking ahead, while the ECB is expected to tighten its monetary policy following its June policy meeting, the focus may be on the bank’s forward guidance, with the euro poised to fall if policymakers are more trepidacious of further hikes.
Pound
GBP/EUR: Unchanged at €1.15
GBP/USD: Down from $1.35 to $1.34
Trade in the pound was highly volatile through May as the local elections triggered a Labour leadership crisis.
The resulting political uncertainty triggered sharp swings in UK borrowing costs, with Sterling plummeting in the second week of May as gilt yields surged to multi-decade highs, before recovering as yields fell back again at the end of the month.
Turning to June, in addition to ongoing UK political uncertainty, Sterling may also be influenced by the Bank of England’s (BoE) latest rate decision, which looks to be a line-ball call.
US Dollar
USD/GBP: Up from £0.73 to £0.74
USD/EUR: Up from €0.85 to €0.86
The US dollar initially trended lower in May as demand for the safe-haven currency was undermined by fresh hopes for a ‘final agreement’ between the US and Iran.
USD exchange rates then rallied as we entered the second half of the month, supported by hawkish Federal Reserve policy expectations as well as renewed tensions between Washington and Tehran.
The situation in the Middle East will no doubt continue to drive movement in the US dollar in the coming weeks, with the currency having a lot of room to fall if a comprehensive peace deal can actually be agreed.
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