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Pound Choppy on Brexit Developments: BoE Interest Rates in Focus

June 14, 2019 9:01 am | Modified June 14, 2019 9:01 am
AUD, Brexit, Central Banks, EUR, GBP, NZD, Politics, USD | BY Ashleigh Fox

The British Pound has begun today trading slightly lower against the US Dollar (GBP/USD) and Euro (GBP/EUR). In general, markets don’t like uncertainty and foreign exchange is no exception to this. Few may see a hard Brexit making much sense for the UK economy, but there’s now a little more clarity over who the next Prime Minister may be–a development that was at least briefly applauded. There’s no escaping the fact that the British Pound (GBP) remains beaten down against the likes of the Euro (EUR) and US Dollar (USD) given the ongoing questions that hang over the country’s future direction, but some clarity may now be emerging.

British Pound Exchange Rate Cheered by the Prospect of Political Certainty

The British Pound found some support yesterday, albeit only briefly, after a resounding win for Boris Johnson in the first round of the Conservative Party leadership elections. He may be committed to seeing Brexit through by October 31st and using whatever means possible to deliver on such a promise, but despite the associated turmoil that comes with this, the Pound gained around one-third of a cent against both the Euro (GBP/EUR) and US Dollar (GBP/USD) in response to the news. Most of those gains have now dissipated, but the move underlines the effect general uncertainty is having on the British Pound’s exchange rate. Anything that gives further clarity over what happens next is likely to result in fresh gains for Sterling, even if they do then prove to be short-lived.

Interest Rate Policies in Focus

Next week sees the release of monetary policy statements from both the Federal Reserve and the Bank of England. Although any immediate change seems unlikely, these announcements have the potential to provide two very different views over the outlook for interest rates. A slowing global trade situation is stifling inflation and reducing job growth in the US, pointing towards the need for a more relaxed approach to monetary policy, while Mark Carney’s team at the Bank of England (BoE) tackle a very different scenario. Further clues may emerge in a speech due to be made by the central bank mogul later today, but with rising UK inflation, the pressure to tighten monetary policy is growing. The Bank of England may have committed not to do this until Brexit is settled, but anything that reinforces such a view could offer some more sustainable support to the British Pound against the US Dollar (GBP/USD).

GBP/USD, EUR/USD and GBP/EUR Exchange Rate Movements

The British Pound rose briefly against the US Dollar (GBP/USD) during Thursday’s session following the first round of the Conservative Party leadership election. Gains proved to be short-lived, although greater clarity over the likely future path for UK monetary policy in a speech by Mark Carney today has the potential to provide fresh support ahead of the weekend break.

With limited economic data, yesterday proved to be a somewhat quiet session for the Euro against the US Dollar (EUR/USD). The pair lost a little ground off the back of the idea that Boris Johnson may steam-roll through a no-deal Brexit, which would see the European Union not being paid the £39 billion divorce settlement. Losses were limited, although the pair has now given back all its gains from last Friday’s disappointing US employment data.

The Pound has now managed three consecutive days of gains over the Euro (GBP/EUR), putting Sterling on course for its first weekly gains over the common currency since late April. Mark Carney’s comments later today could prove decisive here, although further clarity over the likely path of Brexit will also prove instrumental.

Why Did it Move? – Pound to New Zealand Dollar (GBP/NZD)

The New Zealand Dollar slumped against the British Pound last night after the release of some disappointing Manufacturing PMI data. Weakness for NZD was further compounded by speculation that the Reserve Bank of Australia (RBA) would be forced into further rate cuts. The close correlation between the two economies left the Kiwi Dollar under heavier pressure as a result. Having moved as low as 1.9275 towards the end of yesterday’s European session, the cross has this morning traded above 1.9400, marking the first time this month such a level has been reached.

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