- GBP posts broad-based gains on falling ‘Brexit’ bets
- EUR exchange rates struggle on ECB policy easing speculation
- USD firms on improved Federal Reserve rate hike bets
- Sterling forecast to hold position of strength
GBP/EUR – Rallies as ‘Brexit’ Fears Diminish
A marked Sterling rally recently caused the GBP/EUR exchange rate to hold above 1.31. The Pound’s uptrend can be related to easing ‘Brexit’ concerns as EU referendum opinion polls continue to show that the UK will vote to remain in the European Union. Several influential financial institutions have warned against the risks of a ‘Brexit’, solidifying hopes that undecided voters will be persuaded to vote ‘remain’. One of the major warnings has come from the Bank of England (BoE) as Governor Mark Carney suggested that the UK will face a technical recession in the event of a ‘Brexit’. The most recent warning has come from the Institute of Fiscal Studies (IFS). IFS members warned that the UK could face an additional two-years of austerity measures following a ‘Brexit’ vote.
GBP/USD – Advances Despite Improved Federal Reserve Rate Hike Bets
The GBP/USD exchange rate is holding above 1.46 today. Such has been the increase of Sterling demand that the US Dollar failed to recover ground even after advancing versus the majority of its closest currency rivals. One of the major factors supporting demand for the North American asset is improved Fed rate hike bets. After New Home Sales reached an 8-year high (having jumped the most in 24 years), pressure on the Federal Open Market Committee (FOMC) to hike the official cash rate increased significantly. There will be several US ecostats today with potential to provoke volatility. Traders will want to pay particular attention to the House Price index, Services PMI and Composite PMI to gauge the likelihood of a near-term Fed cash rate hike.
USD/GBP – Have Traders put the Cart before the Horse?
The latest Sterling rally is cause for concern for many economists, with some fearing that traders have put the cart before the horse. In recent history opinion polls have been shown to be inaccurate. If the Pound continues to appreciate and the UK votes to leave the EU, the resultant shock may be even greater. Economists are fearing similar issues with bets on Federal Reserve policy outlook given that FOMC officials have shown reluctance to alter rates at a time of political and geopolitical uncertainty.
EUR/USD – Trending Narrowly despite Greek Debt Relief Deal
Despite the fact that Greece finally secured a debt relief deal as the International Monetary Fund (IMF) backed away from its hardened stance on Greece’s debt issues, the Euro failed to advance. Even positive domestic data, which showed German Consumer Confidence rose beyond forecasts, wasn’t enough to provoke Euro appreciation. This is due to mounting speculation that the European Central Bank (ECB) will need to expand monetary policy in order to get inflation back on target. However, options for ECB policymakers are running low as the current bond-purchasing programme is already stretched to its limits.