The Pound slid against the Euro (GBP/EUR) yesterday after the European Central Bank (ECB) held fire on interest rates. Better-than-expected US economic data also dampened hopes of a big rate cut from the Fed next week, pressuring the Pound against the US Dollar (GBP/USD), too. Elsewhere, an interest rate cut in Turkey generated short-lived volatility for the Pound against the Turkish Lira (GBP/TRY).
ECB Optimism and Brexit Uncertainty Knock Pound
The Pound Euro exchange rate (GBP/EUR) slumped yesterday after the European Central Bank struck a tone that was marginally less cautious than many had been expecting at its regular monetary policy meeting. The Euro initially faltered over the idea of fresh stimulus measures after the summer, but the fact that there was no movement on rates when some had been looking for a modest reduction was sufficient to leave the common currency ahead on the day. The Pound suffered further against the Euro after politicians in Brussels reiterated their line that the Brexit withdrawal agreement wasn’t up for renegotiation. This increases the risk of both a no-deal Brexit and a no-confidence motion being tabled against the UK government, with both scenarios likely to exact a heavy toll on Sterling.
Aggressive Fed Rate Cut Hopes Diminish Further
Better-than-expected Durable Goods Order data from the US yesterday was sufficient to knock the Pound US Dollar exchange rate (GBP/USD), with the pair now having almost fully reversed the Boris bounce seen off the back of the new Prime Minister’s appointment on Wednesday. Although the longer-term trend for Durable Goods Orders remains negative, this print plays further to the idea that the Federal Reserve won’t be making an aggressive 50 basis point rate cut at their meeting next week, delivering support for the Greenback as a result.
Why Did it Move? Pound Sterling to Turkish Lira (GBP/TRY) Exchange Rate
The Pound Turkish Lira exchange rate (GBP/TRY) saw some significant volatility off the back of an interest rate cut by Turkey’s central bank yesterday. Jumping as high at 7.22 before dipping down to 7.06, the market was reacting to a 425-basis point cut, significantly more than the 250 basis point cut which had been forecast. Despite the rate cut, demand for Turkish government debt remains strong because of the yield on offer even after inflation has been taken into account. Yesterday’s rate cut removes one line of uncertainty and overseas investors were evidently quick to rush back in. GBP/TRY now trades at 6.09