Sterling
Sterling suffered yesterday in response to comments from Bank of England policymaker David Blanchflower hinting that the bank could push interest rates into negative territory. Indeed, British banks have already started warning business accounts that they may have to start charging for deposits in the near future. Most analysts expect the BoE to cut rates next week, but only by 25 basis points. The consensus is that if the Governor Mark Carney and co. do drive rates into the red, they will do it over a longer period of time.
However, markets have been wrong before – one quite recent historic referendum springs to mind – and if the BoE does in fact slash rates by more than 50 basis points on August 4 then we could see a substantial devaluation in the Pound’s exchange rate.
Euro
The Pound to Euro exchange rate softened by almost a cent yesterday in response to the dovish rhetoric from the BoE’s David Blanchflower. Sterling was also damaged, to a lesser extent, by news that Lloyds is planning to cut 3,000 jobs as a consequence of the ‘Brexit’ vote. Analysts said the dire news was likely to be followed by similar stories as other companies adjust their growth projections and contemplate relocating across the channel.
Eurozone data showed that German unemployment remained at 6.1% in July, as expected. But holders of the single currency were cheered by news that German consumer prices accelerated unexpectedly from 0.1% to 0.3% this month. The upbeat print contributed to the Euro’s gains against Sterling yesterday.
US Dollar
Dovish central bank sentiment weighed on ‘Cable’ yesterday, allowing the US Dollar to register gains of around 75 pips against the Pound.
The main event on the economic calendar today is the second quarter US GDP report, which is tipped to show a 2.6% expansion. If the result matches the forecasts it would represent more than double the 1.1% registered in the first three months of the year. With the BoE set to loosen policy next week, a positive growth print of this nature could easily bolster the appeal of the safe haven ‘Greenback’ against the downtrodden Pound.
The Federal Reserve left rates on hold on Wednesday evening but the accompanying statement was seen as hawkish, meaning that some investors are still holding out for a September rate hike from the US central bank.
Canadian Dollar
Sterling gave up its recent one-cent gains against the Canadian Dollar yesterday, despite crude oil prices plunging two cents to a new three-month low.
The move was puzzling seeing as Canadian GDP is expected to print at -0.5% for the month of May this afternoon, which is likely to bring annualised growth down from 1.5% to 1.3%. It seems that the dovish BoE outlook overshadowed oil supply fears for GBP/CAD traders on this occasion.
Australian Dollar
The Pound to Australian Dollar exchange rate tumbled by around 150 pips yesterday as traders hedged their bets ahead of next week’s highly anticipated BoE policy announcement. Markets are currently signally a near certain chance of a rate cut next week and Sterling could suffer further losses if the UK central bank decides to add additional easing measures.
New Zealand Dollar
Sterling weakened by around 150 pips against the New Zealand Dollar yesterday as dovish Bank of England bets dragged significantly on demand for the Pound.