FX Daily: Unpredictable Market Dynamics and the Pound's Struggles
The pound is under pressure, and it's not just because of Brexit.
The UK's political landscape is a rollercoaster, and the recent by-election win by the Green Party is adding to the turmoil. This development could potentially weaken Prime Minister Keir Starmer's position, creating more downside risks for the pound against the euro. But here's where it gets controversial: some market analysts believe that this political uncertainty might actually benefit the pound in the long run, as it could lead to a more stable government and economic policies.
USD: A Quiet End to the Week, But Don't Be Fooled
The dollar might seem to be taking a breather, but caution prevails. The lack of major data releases is keeping the Fed pricing stable, and the Iran and AI jitters have subsided for now. However, any escalation in US-Iran tensions could still have a significant impact on the dollar. The Polymarket probability of a US strike on Iran by end-March remains elevated at 55%, which is preventing markets from chasing dollar depreciation.
EUR: CPI Data and the Euro's Uncertain Future
The euro is finding support at 1.180 in an environment of great uncertainty. The regional CPI reports for February, starting with France and Spain, could provide some clarity. While consensus is looking at a deceleration in the eurozone, our economists see upside risks. This could trigger meaningful and lasting deviations in ECB pricing and, by extension, on the euro.
GBP: The Pound's Political Rollercoaster
The pound is facing intensified pressure after the Green Party's by-election win. This development could increase the perceived possibility of a more left-wing successor to Starmer. However, some market analysts believe that this political noise might actually benefit the pound in the long run, as it could lead to a more stable government and economic policies.
HUF: Taking a Break, But Not for Long
The forint is taking a breather after Wednesday's gains, with some market participants taking profit or reducing exposure. However, we believe that the National Bank of Hungary cutting rates will slow down further forint gains. Therefore, we could see a pause before another EUR/HUF leg down, especially since February inflation could provide a stop for the currency pair; we're expecting a 1.5% year-on-year reading.
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This publication has been prepared by ING solely for information purposes, irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Authors
Francesco Pesole and Frantisek Taborsky
