Sterling approached the close of Thursday’s European session trading lower against both the Euro (GBP/EUR) and the US Dollar (GBP/USD) after the Bank of England (BoE) Governor Mark Carney spoke after the central bank announced it would be keeping interest rates on hold, as well as chopping down growth forecasts for 2018 from 1.8% to 1.4%.
The central banker suggested that the UK’s temporary downturn was largely down to the poor weather that hit Britain at the start of the year and that it would likely only be a temporary downturn. However, Carney did say that the BoE would be likely to hike rates.
The Governor said:
‘What’s the sensible thing to do? Do you act now or do you wait to see evidence that that momentum is re-asserting? The judgement of the majority of the committee is you wait to see for some evidence of that reasserting.’
Above update provided at 14:49 on 10/05/18
The Pound began Thursday above the 1.14 mark against the Euro, trending at daily highs of 1.1439, while remaining in the 1.35 region against the US Dollar (GBP/USD) reaching session highs of 1.3577. Against the Canadian Dollar, Sterling was trending between daily lows of 1.7318 and highs of 1.7418.
Today could be an interesting day for the Pound exchange rate with the Bank of England’s (BoE) so-called ‘unreliable boyfriend’ announcing the Monetary Policy Committee’s (MPC) latest interest rate decision. BoE Governor Mark Carney gained his reputation as the bank’s ‘unreliable boyfriend’ after a number of U-turns on his monetary policy stance. A few months ago it was thought this would be an excellent time for the Pound as the central bank seemed to be on course to hike interest rates above 0.50% for the first time since the Global Financial Crisis (GFC); investors were betting it was almost certain to happen. Although there was a rise last year, that only really corrected a shift down made immediately after the Brexit referendum.
Market analyst Bar Hordijk commented: ‘Some might say Bank of England Governor Mark Carney made a mess of things again. As late as February he was still very positive on monetary policy. But dismal retail sales, disappointing GDP growth and the accelerating softening of inflation have burst Carney’s bubble.’
— Bloomberg Brexit (@Brexit) May 5, 2018
Any positive comments from Carney could help to boost Sterling against other currencies, but markets will be hesitant to let the Pound rally too significantly considering recent economic data has been so poor. In the unlikely and surprising event that the bank does choose to hike rates, Sterling could soar. Despite it being less likely the BoE will increase rates, it’s likely a few policymakers will vote for a hike as per the last meeting.
(Above update provided at 08:27am 10/05/18)
The Pound exchange rate made gains on Wednesday against other currency majors such as the US Dollar (GBP/USD) and the Euro (GBP/EUR), while falling against the Canadian Dollar (GBP/CAD). Investors were broadly selling off the Euro as recent economic data failed to inspire and the European Central Bank (ECB) remained stoic when it came to its loose monetary policy stance.
Euro (EUR) Sell-Off Allows Sterling (GBP) to Climb
Markets have been watching for signs of a slowdown in the Eurozone and in the currency bloc’s largest economy, Germany. This week helped to enforce speculation that this was in fact taking place, when German Factory Orders failed to reach the 5.0% forecast on the year for March, instead rising lethargically from 3.0% to 3.1%. However, the nation’s Construction Purchasing Managers’ Index (PMI) did manage to rise back into growth territory (above 50.0) from 47.0 to 50.9 in April. Germany’s Retail PMI also slipped from 51.5 to 51.0 flat in April as well.
Interestingly, the latest Eurozone Sentix Investor Confidence Index also missed forecasts, falling to 19.2. Industry experts had expected a rise from 19.6 to 21.0. Perhaps one of the biggest disappointments of late has been the recent fall in consumer prices in the currency bloc.
Last week, the Eurozone consumer price index slipped from 1.3% to 1.2% on the year after the April reading took a tumble from 1.0% to 0.7%, far lower than the 0.9% forecast. Growth figures have also been underwhelming, coming in at 2.5% on the year in the first quarter, a decline from 2.8% in the previous reading, and only 0.4% registered in Q1 quarter-on-quarter.
Tomorrow, the ECB will publish its Economic Bulletin which could also impact the way the Euro trades.
Canadian Dollar (CAD) Rises as Oil Hits Three-and-a-Half Year Highs on Iran Nuclear Deal
Meanwhile, the Canadian Dollar has been offered a boost after tensions rose between the US and Iran. The price of oil rallied to reach three-and-a-half-year highs at $77.20 per barrel, with some experts suggesting the commodity could reach $80.
Thursday will see the Canadian New Housing Price Index released, ahead of a big data day on Friday. The latest Net Change in Employment and Unemployment Rate figures for Canada will be out which could be highly instrumental in determining how popular the Canadian Dollar is with investors.
US Dollar (USD) Exchange Rate Awaiting Inflation Data
Thursday is likely to be the big day for the US Dollar in terms of economic data with the latest US Consumer Price Index making its way onto the market. Economists believe inflation will increase from 2.4% to 2.5% on the year in April which may help give some encouragement to the Federal Reserve to keep hiking interest rates as the year goes on.
GBP, USD, EUR, CAD Exchange Rate Forecast
That being said, the US Dollar could experience some extra volatility as the situation with Iran unfolds. After Trump’s announcement to remove the US from the Iran nuclear deal, countries and currencies have been taking a hit. it’s caused a rift with other partners in the deal including the UK, Germany, France, Russia and China, and European companies that have dealings in Iran (such as Peugeot) have been feeling the effects of risk aversion. The Iranian Rial has been reported to have hit record lows.
Since Trump’s journey to power, the US President hasn’t been afraid to rock the boat. Recent incidences include Syria and threats to North Korea. Iran is the world’s fifth-largest oil producer too, meaning there could be plenty of opportunities for oil prices to jump (and give the Loonie a foot-up in the process). Additionally, if geopolitical tensions heat up, investors may buy the US Dollar as a safe-haven asset.
The Pound to US Dollar (GBP/USD) exchange rate is trending at 1.3585. The Pound to Canadian Dollar (GBP/CAD) exchange rate is trading at levels of 1.7498. The Pound to Euro (GBP/EUR) exchange rate is trending at 1.1435.