- Labor risks losing the local elections, which could put pressure on GBP/USD.
- Japan could afford more monetary intervention.
The US dollar took advantage of the decline of stock indices from all-time highs and the rise of . US dollar buyers increased their pressure, driven by rising demand for safe-haven assets and a worsening economic outlook in the eurozone amid higher energy prices.
The escalation of the conflict in the Middle East has revived investor interest in the US dollar as a safe haven asset. At the same time, oil prices have risen, as have the risks of rising inflation in the United States. To combat this, the Federal Reserve could raise interest rates this year, with the likelihood of such a move rising from 11% to 32%.
The Bundesbank is prepared to follow the ECB's path of monetary tightening. According to the president of the Bundesbank, Joachim Nagel, the objective is clear: return inflation to 2% in the medium term. If this does not happen, interest rates will have to be raised. However, investors see such rhetoric as “hawkish” bluffing. EU Economic Affairs Commissioner Valdis Dombrovskis argues that Europe is facing a stagflationary shock as high energy prices are pushing the region towards higher inflation and slower GDP growth.
The appreciation of the yen for three consecutive days following the monetary intervention has led the Ministry of Finance to comment on the rules. The IMF considers this entire period as a single episode. Unless up to three such episodes occur within a six-month period, the exchange rate regime will not go from controlled floating to free floating. This means that Japan will be able to resume sales until May 5.
The escalation in the Middle East and the upcoming local elections in Britain are putting pressure on the GBPUSD. Labor risks losing the vote due to Keir Starmer's weakening approval ratings. Growing political uncertainty is driving volatility in the pound and a drop in its exchange rate.
The FxPro Analyst Team
