Panic sets in for the pound (GBP)

After somehow managing to stand its ground at the beginning of the week despite myriad reasons to panic, the pound’s (GBP) woes finally caught up with it yesterday afternoon in an aggressive market sell-off. While some investors might have clung to the indication from Bank of England Governor Andrew Bailey that a rate hike could be in sight – a sentiment that typically strengthens the pound – it wasn’t enough to provide the necessary buoyancy amid the ongoing energy crisis in the UK, among other shortages, and so the pound (GBP) sank against a basket of major currencies.

Against the US dollar, sterling (GBP) experienced its biggest loss, plummeting to an almost two-month low against the backdrop of some broad-based USD strength. PM Boris Johnson has assured that plans are in place to ease the supply chain crisis in the UK, with the army said to be on standby to relieve the fuel shortage. However, adding further pressure to the strained UK economy is the imminent end of the Covid-19 furlough scheme tomorrow.

Green like the Hulk (USD)

The US dollar has been reaping the rewards of a rise in US Treasury yields. Yesterday, the benchmark 10-year Treasury yield rose again by 6.2 basis points to reach its highest levels since June in an ongoing and steady increase that began last week. In his anticipated speech delivered yesterday to the Senate, Federal Reserve Chairman Jerome Powell expressed nervousness, warning that higher inflation may continue for longer than expected, and that economic growth has “continued to strengthen” but has been met with upward price pressures caused by a number of factors including ongoing supply chain bottlenecks.

Supported by the rising yields and the expectation that the Fed will soon begin tapering quantitative easing, the Greenback (USD) now stands at its strongest levels of the year, particularly against the euro (EUR), the pound (GBP) and the Japanese yen (JPY). The yen (JPY), which is typically sensitive to rising US Treasury yields, is now trading at an 18-month low against the USD.

New lows for the euro (EUR)

Against the backdrop of immense US dollar strength, the euro (EUR) has dropped to a new yearly low against the Greenback (USD), while enjoying slight gains against the struggling pound (GBP). Amid the Fed’s hawkish sentiment towards sooner-than-expected monetary policy normalization, and the Eurozone energy crisis sending oil and gas prices soaring to fresh highs, the euro (EUR) remains in the thick of a risk-on environment, failing to benefit from the higher-than-expected Spanish Consumer Price Index (CPI).

The shortage in power across parts of the continent has led to factory closures and, therefore, rising concerns for post-pandemic economic recovery. Later today, Federal Reserve Chair Jerome Powell, European Central Bank President Christine Lagarde, Bank of England Governor Andrew Bailey and Bank of Japan Governor Haruhiko Kuroda are set to speak on a panel about pandemic recovery, the future of monetary policy and the implications of climate change.