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OPEC Deal gives Pound Sterling (GBP) Boost on Global Inflation Hopes

Published: 1 Dec at 1 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Germany, Italy,

Pound Sterling (GBP)
Sterling saw another surprising rally on Thursday after advancing due to OPEC’s plans to cut oil production by 1.2m.
As prices of oil are closely correlated to global inflation, the prospect of higher inflation in the long-term benefitted the Pound. Inflation is already set to spike in the UK due to Sterling’s Brexit plummet, but higher global inflation could be what is needed to pressure the Bank of England (BoE) into tightening monetary policy.
On Thursday the Pound was also boosted by the latest Brexit news. Eurogroup President Jeroen Dijsselbloem hinted that there may be a way for the European Union to allow Britain to remain in the internal market after the Brexit. UK Brexit Secretary David Davis also stated on Thursday that the UK may be able to pay the EU a fee in order to maintain single market access. As hopes for a post-Brexit UK with single market access increased, the Pound climbed.

Euro (EUR)
The Pound to Euro exchange rate surged again on Thursday. The exchange rate had previously advanced due to underlying weakness in the Euro ahead of the coming week’s Eurozone political events and European Central Bank (ECB) meeting, but Brexit and OPEC news were the main reasons behind the pair’s latest gains.
Thursday’s Eurozone data was generally optimistic despite Germany’s November manufacturing PMI coming in below expectations at 54.3. The Eurozone’s overall manufacturing PMI met expectations at 53.7 and Italy’s final Q3 Gross Domestic Product (GDP) results hit 1.0%, beating expectations of 0.9%.
What was perhaps most impressive was that the Eurozone’s unemployment rate had fallen below 10% for the first time since 2011 and had actually fallen to 9.8%, its best level since 2009.

US Dollar (USD)
The Pound to US Dollar exchange rate surged on Thursday as hopes for a less bearish Bank of England (BoE) thanks to global inflation as well as soft Brexit hopes kept the Pound strong and GBP traders optimistic.
This is despite the US Dollar still having a wide variety of upside factors going for it. Wednesday’s November employment results from ADP came in at a better-than-expected 216k, which caused traders to hope for an impressive US Non-Farm Payroll report on Friday.
Strong NFP would keep upside factors in the US economy high, and traders would become even more convinced that a December interest rate hike from the Federal Reserve is on its way. The possibility of higher global inflation also improved the outlook for further Fed rate hikes in the coming year.

Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate advanced in the early afternoon as while OPEC’s oil production cut news benefitted the Canadian Dollar, risk-demand faded on Wednesday and Sterling saw another surge of its own thanks to comments made by Eurogroup President Dijsselbloem as well as UK Brexit secretary David Davis.
Demand for the Canadian Dollar was strong on Wednesday after OPEC’s meeting, and oil prices continued advancing. However, while oil is Canada’s most lucrative commodity the ‘Loonie’ fails to benefit in times of low market risk-sentiment. With currencies like the Pound and US Dollar taking focus on Thursday, demand for risky commodity-correlated currencies is low.

Australian Dollar (AUD)
The Pound to Australian Dollar exchange rate advanced to its best levels since mid-September on Thursday as demand for Sterling shot higher thanks to comments made by the Eurogroup President and UK Brexit Secretary that gave UK markets higher hopes of a soft Brexit.
The Australian Dollar, on the other hand, suffered from a plunge in demand for risk-correlated currencies during Thursday trade. Prices of iron ore, Australia’s most lucrative commodity, also continued falling, leaving demand for the ‘Aussie’ low from commodity currency investors too. The ‘Aussie’ saw little boost from the day’s Australian manufacturing index result from AiG, despite an improvement from 50.9 to 54.2.

New Zealand Dollar (NZD)
The Pound to New Zealand Dollar exchange rate had recovered all its daily losses and trended above the week’s opening levels on Thursday, as UK markets became bullish on hopes that the nation could somehow maintain access to the European Union’s single market even after Brexit.
New Zealand Dollar traders were turned off the ‘Kiwi’ throughout the day due to a risk-off mood in foreign exchange markets. With outlooks for the Pound and US Dollar higher, this left demand for risky currencies like NZD lower.

As of Thursday, 1st December 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1807, GBP USD exchange rate was 1.2588, GBP AUD exchange rate was 1.6961, GBP NZD exchange rate was 1.7739, and GBP CAD exchange rate was 1.6753.
Dominic Lee About Author: (474 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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