Forex Analysis & Reviews: 05.04.2022 - Is the pound more attractive...

05.04.2022 06:12 PM

Is the pound more attractive than the euro?

The dollar started this week with a combative attitude, however, paired with the British pound, it is not able to win a clear victory. The GBP/USD pair had no difficulties holding positions above the 1.3100 mark.

The euro, paired with sterling, noticeably sank at the auction on Monday and today does not promise to recapture its lost positions. The weakness of the single European currency against the British indicates that the pound is now regarded by the bidders as a safer asset since the economic prospects of the UK are seen in the current situation much more positive than the countries of the euro region. A significant slowdown in economic growth and the expected further recession in the eurozone, provoked by the introduction of tough sanctions against Russia, are very obvious. The euro has become hostage to the decisions of the political elites of its region, therefore, further steps of its growth are unlikely to be decisive.

Despite the disappointing forecasts of the European economy, the European Union continues to impose additional sanctions against the Russian Federation. So, today, it became known that their new package has already been prepared, which will come into force after the approval of the countries of the euro region. The head of the European Commission, Ursula von der Leyen, announced that from now on a complete ban will be imposed on Russia on any transactions with four "key" Russian banks (including VTB), the entry of Russian ships into European ports is prohibited (the exception will be the delivery of food and energy). In addition, the export of goods worth 10 billion euros to Russia, including products of advanced semiconductor technologies, mechanical engineering, and transport equipment, will be banned. The new sanctions will also affect imports of coal from Russia by 4 billion euros, and imports of goods by 5.5 billion euros. This includes wood, cement, seafood, and alcoholic beverages. Ursula von der Leyen added that the European Union is preparing additional sanctions against the supply of Russian oil to the territory of EU countries.

Judging by the announced restrictions, they do not correspond to the proposals made on Monday by French President Emmanuel Macron and the Council of the European Union. Due to strong resistance from Germany and Hungary, this new package of sanctions from the EU will still allow the free movement of oil and natural gas, which will bring Russia almost $1 billion a day in export revenues.

There are plenty of factors that weigh on the pound in the United Kingdom, but noticeably less than in the European Union. There is still no optimistic macroeconomic data in the UK, on the contrary: the whole global situation is more likely to lead to a decline in economic indicators. Probably, for this reason, the pound paired with the dollar has been trading in a closed amplitude of 1.3105-1.3180 for the fifth day in a row, showing extremely low activity.

On Monday, the deputy governor of the Bank of England, John Cunliffe, finally publicly admitted that the Russian-Ukrainian conflict had dragged on too long, which would certainly increase price pressure in England and have an extremely negative impact on the incomes of British households. In a situation of accelerated inflation, according to J. Cunliffe, it is important to continue to tighten monetary policy, because so far only this can curb the rise in prices in England.

An important factor for the pound quotes will be the ISM Services PMI data from the United States, the publication of which is expected today. Analysts assume that the component of paid prices will rise to 83.3 in March (in February this indicator was at the level of 83.1). If the overall PMI index indicates a continued expansion of business activity in the services sector along with an increase in prices at the entrance, then bidders may continue to put a 50 basis point increase in the Fed rate in prices, which will eventually prevent the GBP/USD pair from developing an upward movement.

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# EUR # GBP # GBPUSD # EURGBP News

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