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Mon 19 Nov 2018 09:10GMT

Pound Exchange Rates Fall as UK Inflation Rate Slowdown Sparks Trader Panic over BoE Rate Hike

Published: 18 Apr at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, South Africa,

Pound Sterling (GBP)

Following the news that UK inflation rates slowed in March, Pound exchange rates fell across the board today.

Despite expectations for a GBP rally on such news, Sterling dropped because of concerns that with inflation slowing the Bank of England (BoE) might not commit to a May interest rate hike.

As the dust settles from today’s inflation rate data release, the Pound could still see a recovery against its peers on 19th April when UK retail sales figures are released.

Levels of annual retail sales in March are forecast to rise, which could raise confidence among Pound traders.

Problematically, however, levels of month-on-month sales activity are tipped to slow, potentially owing to the two snowstorms that hit the UK during March.

If Pound traders ignore negative monthly stats in favour of the more positive annual readings then Sterling may still rise later in the week.

Euro (EUR)

Euro to Pound and Euro to US Dollar gains have been seen today, with the single currency also appreciating against most other peers.

This favourable trading follows the news that Eurozone inflation levels rose for March’s finalised readings.

For Euro traders, higher inflation is good news because it increases the likelihood of the European Central Bank (ECB) deciding to tighten monetary policy and raise interest rates.

The week’s last notable Eurozone data will be Friday afternoon’s consumer confidence flash for April. This preliminary figure could drain demand for the Euro if it shows a decline from 0.1 points to -0.2 as forecast.

US Dollar (USD)

Although there have been continued underlying concerns about the US’s involvement in the Middle East today, the US Dollar has still rallied against the Pound but dipped against the Euro.

The latest positive US data has been a speech from the Federal Reserve’s William Dudley, who has suggested that three or four US interest rate hikes in 2018 are possible.

Federal Reserve speeches will continue to arrive over the rest of the week, with this afternoon bringing additional remarks from Mr Dudley as well as from fellow Fed member Randal Quarles.

If Mr Dudley elaborates on his interest rate hike forecast, the US Dollar could appreciate further before the weekend.

Australian Dollar (AUD)

Although the US Dollar has seen some strengthening today, this hasn’t prevented the Australian Dollar from rising against the Pound, Euro and USD.

This favourable trading may be down to a recent International Monetary Fund (IMF) report, which has suggested that Australia will see 3% GDP growth in 2018.

Notably, this forecast came with the caveat that a US-China trade war could scupper chances of seeing such high levels of economic growth.

For Australian Dollar traders, the next economic data to watch out for will be 19th April’s unemployment rate reading.

Covering changes to the jobless rate in March, the figure is expected to show a reduction from 5.6% to 5.5%.

Lower unemployment could spark an Australian Dollar advance, as it could be the precursor to faster AU wage growth and a Reserve Bank of Australia (RBA) interest rate hike.

New Zealand Dollar (NZD)

Despite the recent Global Dairy Trade (GDT) price index showing a 2.7% rise in dairy prices, the New Zealand Dollar has failed to advance against its peers.

This poor performance comes after the news that the US may not be looking to rejoin the Trans-Pacific Partnership (TPP), a multinational trade deal that New Zealand is a member of.

This evening’s Q1 NZ inflation rate data could trigger New Zealand Dollar exchange rate fluctuations.

Quarter-on-quarter inflation is tipped to rise, but compared to Q1 2017 the annual reading is expected to show a slowdown in Q1 2018.

Because annual data is generally considered the more important of the two, this result could trigger a brief devaluation of the New Zealand Dollar.

Canadian Dollar (CAD)

In the wake of a cautious Bank of Canada (BOC) interest rate decision, the Canadian Dollar has tumbled against its regular peers today.

BOC policymakers left interest rates untouched and to the disappointment of CAD traders gave no indication that an interest rate hike would be forthcoming.

There are further high-impact Canadian data releases out later this week, with inflation and retail sales stats due for release on 20th April.

Current estimates are for inflation to have picked up in March, which could prompt a Canadian Dollar advance.

Additionally, if the year-on-year retail sales reading shows growth in February then late-week CAD exchange rate gains will also be more likely.
As of Wednesday, 18th 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 1.4208, GBP AUD exchange rate was 1.8237, GBP NZD exchange rate was 1.9368, GBP CAD exchange rate was 1.7938, GBP CNY exchange rate was 8.9125, and GBP ZAR exchange rate was 16.9416.
Patrick James About Author: (288 Posts)Patrick completed his economics degree just as the global financial crisis struck in 2008. In the intervening years Patrick has made his mark, climbing to a prominent position within a large financial services provider. As part of his role Patrick uses his expertise to advise companies of the best ways to safeguard against currency risk.

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