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Mon 13 Jul 2020 05:21GMT

British Pound (GBP) Sturdy as Bank of England (BoE) Interest Rate Hike Bets Firm

Published: 10 Apr at 12 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, France, Germany, Italy, Mexico,

Pound Sterling (GBP)
The Pound has continued to see relatively sturdy performance since markets opened this week and the British currency has been supported by strong UK housing data and hawkish comments from Bank of England (BOE) officials.

Sterling remained appealing on Tuesday as BoE policymaker Ian McCafferty argued that another UK interest rate hike should not be delayed further. This boosted market bets that the BoE was preparing to hike UK interest rates again during its May decision next month.

Demand for the Pound could weaken if Wednesday’s UK trade or production stats disappoint, but if not the Pound could see further support from sturdy BoE interest rate hike bets in the coming sessions.

Euro (EUR)
The Pound to Euro exchange rate briefly dipped overnight, but on Tuesday advanced again and trended near its best levels in two weeks. Sterling easily advanced thanks to strengthening Bank of England (BoE) interest rate hike bets.

Recent Eurozone data has done little to support the Euro. Monday’s German trade results were disappointing, with imports and exports coming in with surprisingly deep contractions. Tuesday’s French and Italian industrial production stats also disappointed.

However, the Euro could strengthen towards the end of the week if upcoming inflation stats impress. French Consumer Price Index (CPI) results will be published on Thursday, followed by key German inflation figures on Friday.

US Dollar (USD)
Hopes for the US and China to be able to work through trade issues were not enough to prevent against further Pound to US Dollar exchange rate gains on Tuesday and the pair advanced to its best levels in two weeks.

While China’s President indicated in a speech that China was willing to cooperate on certain trade issues, markets remained concerned that US-China tensions remained. Recent US data has also been disappointing which has limited market demand for the US Dollar.

Key US data will be published during Wednesday’s American session, including US Consumer Price Index (CPI) from March. If US inflation beats expectations, it could boost market hopes that the Federal Reserve could be pressured into hiking US interest rates four times in 2018 as opposed to three times. This would make the US Dollar more appealing towards the end of the week.

Australian Dollar (AUD)
Disappointing Australian business confidence stats weighed on the Australian Dollar on Tuesday, making it easier for the Pound to Australian Dollar exchange rate to hold away from the lows seen overnight.

Market hopes that the US and China could negotiate differences in trade improved following a speech from China’s President, which briefly caused GBP/AUD to slump. However, as Australian business confidence fell short of expectations in March, the pair trended closer to the week’s opening levels during Tuesday’s European session.

Australian Dollar movement is likely to continue to be influenced by developments in US-China trade clashes, but Wednesday’s Australian consumer confidence survey data could support the ‘Aussie’ if it impresses.

New Zealand Dollar (NZD)
The Pound to New Zealand Dollar exchange rate has fallen so far this week, as investors looking for risky currencies have found the New Zealand Dollar more appealing than its peers.

Tuesday saw the publication of New Zealand business confidence data from NZIER, which lightened from -12% to -11% in Q1. On top of this, NZD has been benefitting from market hopes that the isolated nation of North Korea may be willing to discuss denuclearisation.

More New Zealand business data will come in on Friday, but otherwise the Pound to New Zealand Dollar exchange rate will be driven by risk-sentiment.

Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate briefly advanced on Monday, but due to hopes that the US and China could avoid a potential ‘trade war’ the Canadian Dollar strengthened and GBP/CAD trended lower on Tuesday.

News that Mexico was confident in the chances of a new deal on the North American Free Trade Agreement (NAFTA) by May has also bolstered support for the Canadian Dollar this month.

The Canadian Dollar is most likely to be driven by US trade news and NAFTA developments this week, as Canadian housing data due on Tuesday and Thursday is unlikely to be hugely influential.
As of Tuesday, 10th April 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1474, GBP USD exchange rate was 1.4179, GBP AUD exchange rate was 1.8255, GBP NZD exchange rate was 1.9245, GBP CAD exchange rate was 1.7861, GBP CNY exchange rate was 8.9069, and GBP MXN exchange rate was 25.8921.
Dominic Lee About Author: (421 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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