– GBP / USD is at 1.41 while EUR / USD is at 1.22
– USD retreats at an icy pace as CNH and ZAR hold their own
– Exchange rates inflate or deflate economies worried about inflation
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- GBP / USD reference rate at publication:
- Spot: 1.4143
- Bank transfers (indicative guide): 1.3740-1.3840
- Specialist rates for money transfer (indicative): 1.3880-1.4030
- More information on obtaining specialized rates, here
- Set up an exchange rate alert, here
The pound-to-dollar exchange rate entered the penultimate session of the week alongside the EUR / USD as the greenback retreated from other currencies at a freezing pace, while the renminbi and rand fell. were standing in an increasingly inflation-preoccupied foreign exchange market.
The British Pound and Euro stalled against the dollar on Thursday, while the greenback retreated at an icy pace from the week’s highs against others in a market where the Chinese renminbi was heading to new multi-year highs .
“GBP / USD continues to hold below 1.4238 / 45, the recent high and March 2018 high, and we would allow for near term consolidation,” says Karen Jones, chief analyst technique for currencies, commodities and bonds at Commerzbank.
“The new EUR / USD high was not confirmed by the daily RSI, which is currently experiencing a major divergence. We have partially hedged our long positions and would tighten stops for the rest, ”Jones adds.
In the G10 sphere, the strongest currency was the New Zealand dollar for a second day, while at the bottom of the stack were the Swiss franc and the Japanese yen.
Between these two extremes, European currencies lagged behind while commodity Australian and Canadian dollars led.
Above: The Pound-Dollar rate displayed at daily intervals alongside EUR / USD.
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“The rise of the JP Morgan Asia Dollar Index from its mid-May low of 108.54 takes it back to the current May high of 109.50, a rise above which the January and February highs at 109.81 / 110.17 will be in sight, ”says Axel Rudolph, a senior technical analyst and Commerzbank colleague at Jones.
Elsewhere in the world, the Chinese renminbi had hit its highest level against the dollar since May 2018, while Asian currencies more generally also outperformed alongside a set of emerging market units.
GBP / EUR forecast 2021
Period: From Q2 2021
GBP / USD forecast 2021
Period: From Q2 2021
These emerging market currencies included the South African Rand, which hit its strongest against the dollar since February 2019.
“The tone of the Bank of Korea has clearly become more belligerent compared to April, as it has sharply raised its growth forecast and expects higher inflation this year,” said Ho Woei Chen, CFA and economist at UOB Bank in Singapore.
Above: price and performance of the US dollar exchange rate. Source: Netdania Markets.
The only obvious common denominator in the above performance pecking order seen on at least Thursday was inflation and the relative degree of difficulty that different central banks have typically had when it comes to delivering inflation levels. targeted.
Central banks have inflation targets, and it is in pursuit of those targets that they tinker with interest rates or use other monetary policy tools like quantitative easing, although many have had difficulty. hard to reach them in recent years, if not longer.
In modern economic and financial systems, inflation is seen as a necessary evil, and it is an evil that has always been difficult to tame or control, even in the present day.
At present, inflation is in excess in many emerging market economies, for example – leading to higher interest rates than otherwise – while in major industrialized economies it exists in systemic deficit, albeit to varying degrees.
However, currency exchange rates can and do influence inflation trends through the impact of currency fluctuations on the cost of imported goods and services, the changes of which can easily filter through into the markets. consumer prices and official measures of inflation.
Above: USD / CNH displayed at daily intervals alongside USD / ZAR.
There is no better illustration of this point than the ongoing rally in the renminbi, which hit new multi-year highs against the dollar this week and days after its emergence, researchers at the People’s Bank of China (PBoC) had suggested allowing the Chinese currency to appreciate against the greenback to offset the impact of rising commodity prices on the cost of imported capital goods and corporate profit margins.
Higher import costs resulting from lower exchange rates can drive up inflation and vice versa, although the market has not always been able to take advantage of this influence and has often wasted it, along with the euro. -dollar and the European Central Bank (BCE) the best example of the latter.
Meanwhile, the South African Reserve Bank (SARB) and others have often struggled to reign under excessive inflationary pressures, but have faced an inflationary depreciation of the currency which further increases inflation, or have simply grappled with monetary trends that do little to contribute to the bank’s efforts.
It may still be early and somewhat premature to suggest that the currency market has been seriously reformed in any way, although Thursday’s performance pecking order at least may be a tentative indication of something. like that being the pipeline.
Few central bankers in the world would be heard to complain about this, which is why readers could do worse than attempt to understand the market in the context of the impact that exchange rate trends have on targets for the market. central bank inflation wherever it leads to inconsistencies. results.