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Pound Exchange Rate Forecast: Could Sterling Rise with the August BoE Interest Rate Meeting? Haldane Speaks

May 16, 2018 11:33 am | Modified September 4, 2018 7:18 am
EUR, GBP, SEK | BY Ashleigh Fox

The Pound has begun Thursday trading above 1.14, between levels of 1.1427 and 1.1476. Yesterday Sterling gained some favour when reports hit markets that the UK could be open to remaining in the customs union after Brexit. However, the Pound has weakened this morning as a Government source has suggested that the claims yesterday weren’t accurate; markets are awaiting some clarity on the reports.

Meanwhile, the Bank of England Chief Economist Andy Haldane will be speaking in today’s session which could influence the Pound exchange rate. European Central Bank (ECB) Vice President Constancio will also speak in Frankfurt throughout the day.

Current Interbank Exchange Rates (Correct as of 09:35 am):

GBP/EUR – 1.1456
GBP/SEK – 11.7692

Above update provided at 09:35 am on 17/05/18

The Pound to Euro (GBP/EUR) exchange rate has been sinking once again, yet the Sterling to Swedish Krona (GBP/SEK) exchange rate has been on the climb. 

Will the Bank of England Hike Interest Rates in August Creating a GBP Rally?

The British currency faltered on Wednesday as wage growth lagged behind again and markets assessed the possibility of a Bank of England (BoE) interest rate hike in the near future. The UK’s Jobless Claims Change data printed at 31.2K in April, while Average Weekly Earnings sank from 2.8% to 2.6% in the three months through March on the year. Excluding bonuses, wages inched up from 2.8% to 2.9%. However, in positive news, the UK’s Employment Change figure rocketed above targets, to come in at 197K, an impressive number in comparison to the previous 55K and the 129K forecast.

Chancellor of the Exchequer Phillip Hammond commented: ‘We can be proud of our record on jobs. The unemployment rate is at its lowest in over 40 years and with our “national living wage” we are making sure that the lowest-paid feel the benefit with an extra £2,000 a year. Now the focus has to be on ensuring that wages keep rising faster than inflation, so that living standards increase.’

Although investors have been cheated out of a May interest rate hike by a slew of poor data, these ecostats could help to nudge the central bank to take a more hawkish stance as we approach future Monetary Policy Committee (MPC) meetings, especially the August one which has been pegged as the next significant date.

Economist James Smith considered the possibility of an August interest rate increase, saying: ‘As markets become increasingly sceptical about the prospects of a UK rate hike this year, the latest wage data could prompt a bit of a rethink. At 2.9%, earnings growth excluding bonuses is now running at the fastest rate since mid-2015 and will make the Bank of England more confidence that their optimistic stance on wage growth is bearing fruit. Remember that survey evidence from Bank of England agents has been pointing to the best year for pay settlements since the crisis.’

If data continues to pick-up, it’s possible the central bank will look to adjust interest rates, and create a GBP rally in the process.

Swedish Krona (SEK) Exchange Rate Falls, Eurozone Inflation Slips

Meanwhile, Wednesday’s brought with it the final Eurozone inflation numbers, which showed a slip from 1.3% to 1.2% on the year in April as expected. Markets are looking towards European Central Bank (ECB) Chief Mario Draghi’s speech later in today’s session. Over the years Draghi has gained the reputation of ‘Super Mario’, for his ability to sway the Euro exchange rate with his comments, usually lower.

The Swedish Krona hasn’t had a fantastic time in the markets of late either. At the very start of the month, the Krona hit its lowest level against the Euro (SEK/EUR) since 2009. Investors sold-off the currency while concerns over the dovish Swedish central bank, Riksbank, weak inflation, and a lethargic housing market rose. The Krona’s been falling again in today’s session, falling by around 0.40% against the Pound. The GBP/SEK exchange rate has reached interbank highs of 11.7983 so far today.

Yesterday, Riksbank Deputy Governor Cecilia Skingsley suggested that there could be an interest rate rise on the cards as soon as October, which would be the first increase in seven years.

Skingsley commented:

‘If you look at the path it accommodates October as well as December. It’s hard to pinpoint exactly where you are versus your colleagues, and that can move around a little bit, but I think my statement was nothing dramatic, it was in line with how we see the policy path.’

Today’s Swedish Capacity Utilization figure came in at -0.4% in Q1 on the quarter, whereas Swedish Industrial Inventories reached SEK8.2B, an improvement on the previous SEK-0.7B.

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