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Fri 19 Jul 2024 12:43GMT

British Pound Jumps on Surprisingly Hawkish Vote Split at Bank of England (BoE)

Published: 21 Jun at 3 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Italy,

Pound Sterling (GBP)
Sterling saw broad and strong gains on Thursday, as investors reacted to a split in votes from Bank of England (BoE) policymakers that economists had not anticipated.

While the BoE was expected to leave monetary policy frozen – and ultimately did – more members of the BoE Monetary Policy Committee (MPC) than expected voted to hike UK interest rates this month. Policymaker Andy Haldane turned hawkish and argued that UK growth was bouncing back from the slow pace seen over the winter.

As a result of the vote split, investors are now actually more confident that the Bank of England could hike UK interest rates in August after all. With BoE rate hike bets higher, the Pound outlook is higher too and Sterling could end this week higher against some major rivals.

Euro (EUR)
The Pound to Euro exchange rate recovered most of its weekly losses following the Bank of England (BoE) policy decision, but its gains were limited as Euro trade steadied from the week’s European Central Bank (ECB) speculation.

While reports of ECB fears on trade tariffs had kept pressure on the Euro, fresh reassurance that Italy planned to stay in the Eurozone helped the shared currency to strengthen. Italian Economy Minister Giovanni Tria said that Italy’s new populist coalition government still had no intention of leaving the Eurozone.

The Euro outlook could be influenced by Markit’s Eurozone PMI projections for June on Friday, if they surprise investors. The PMIs are forecast to have slowed from May’s prints, so stronger than expected PMI data would make the Euro more appealing.

US Dollar (USD)
Following the Bank of England’s (BoE) June policy decision, the Pound to US Dollar exchange rate recovered most of its weekly losses and trended just below the week’s opening levels at the time of writing.

The US Dollar has been benefitting from market jitters about the possibility of a trade war, despite expectations that such a trade war would be a negative for the US economy. This has been due to the US Dollar’s safe haven status.

Friday will see the publication of Markit’s US PMI projections. However, as they are not typically influential they are unlikely to influence US Dollar trade much unless they come in well short of expectations.

Australian Dollar (AUD)
Sterling was able to easily return to its weekly highs versus the Australian Dollar on Thursday, as the Pound outlook rose in reaction to the latest Bank of England (BoE) news, while trade war jitters and Reserve Bank of Australia (RBA) caution weighed on the ‘Aussie’.

The Reserve Bank of Australia has recently played up the need to remain patient regarding inflation and monetary policy, with economists increasingly predicting that the bank will leave policy frozen until 2020.

The next week’s Australian economic calendar will be relatively quiet, so Australian Dollar trade is most likely to react to developments in global trade news and the perceived chances of a US-sparked trade war.

New Zealand Dollar (NZD)
Despite a solid New Zealand growth report on Thursday, the Pound to New Zealand Dollar exchange rate continued to put in solid gains and at the time of writing was trending near its best levels since late-May.

New Zealand’s Q1 Gross Domestic Product (GDP) results met forecasts, slipping from 0.6% to 0.5% quarter-on-quarter and from 2.9% to 2.7% year-on-year. As the data was largely unsurprising it had little impact on NZD trade, so the currency was weighed by global risk-aversion and trade jitters.

Friday will see the publication of New Zealand visitor arrivals data from May, but next week’s trade session will be much more influential for the New Zealand Dollar. The Reserve Bank of New Zealand (RBNZ) will hold its June policy decision next Wednesday.

Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate surged following Thursday’s Bank of England (BoE) news and trended near its best levels in over a month.

The Canadian Dollar remained pressured by trade jitters, as well as the day’s underwhelming Canadian data. Canada’s April wholesale sales unexpectedly slowed to 0.1%, rather than the forecast 0.4%.

Friday’s Canadian inflation and retail data is likely to be hugely influential and could inspire Bank of Canada (BoC) interest rate hike bets and a Canadian Dollar recovery if they impress, however.
As of Thursday, 21st June 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1408, GBP USD exchange rate was 1.3245, GBP AUD exchange rate was 1.795, GBP NZD exchange rate was 1.927, and GBP CAD exchange rate was 1.7636.
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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