Sterling
The Pound continued drifting higher versus the majors on Friday as traders adjusted UK monetary policy bets. The Bank of England voted against altering interest rates in March but markets were shocked to learn that one policymaker, Kristin Forbes, voted to raise borrowing costs this month.
The dissenting hawkish vote, alongside hints that some other bank officials were getting closer to voting for higher rates, suggests that the BoE is growing concerned with the rate of inflation, which recently struck a two-year high of 1.8%. In addition to a pickup in fuel prices, one of the main drivers behind the spike in price pressures is the impact of higher import costs due to last year’s steep depreciation in Sterling. It seems that the BoE is attempting to support the UK currency with hawkish sentiment in order to prevent further devaluations exacerbating the cycle of rising prices and reduced consumer purchasing power.
Euro
The Pound to Euro exchange rate rallied by over half a cent on Friday, settling a few cents above a two-month low hit earlier in the month. The improved outlook for UK interest rates is benefitting the Pound at the moment and we could see a more significant rebound if BoE officials fan the flames of rate hike bets with further hawkish sentiment.
But with Britain’s formal divorce from the European Union just around the corner, and Scottish MPs adamant that they deserve to hold a second independence referendum, there are significant headwinds with the potential to keep Sterling down. Indeed, former Scottish First Minister Alex Salmond said on Friday that an independent Scotland could abandon Sterling, which could destabilise the currency.
US Dollar
The Pound increased in value by around a third of a cent versus the US Dollar on Friday, hitting its highest level in almost three weeks as BoE hawkish bets mounted following Thursday’s surprise central bank statement.
The ‘Greenback’ received positive news in the form of an upbeat consumer confidence report but it was not enough to halt Sterling’s third day of gains – its longest winning streak since January. The headline US consumer sentiment index jumped from 96.3 to 97.6, thanks in part to a 114.5 score in the current conditions index, which marked the highest level since November 2000.
Canadian Dollar
Sterling appreciated by almost a cent versus the Canadian Dollar on Friday to hit a six-week high, despite a mild rise in crude oil prices and an upbeat domestic ecostat. The Canadian manufacturing sales report beat expectations of a -0.2% decline with a sturdy +0.6% expansion. Robust demand in the petroleum and coal industries contributed to the strong result.
Australian Dollar
The Pound to Australian Dollar exchange rate held relatively flat on Friday as enhanced UK rate expectations kept Sterling above the four-month low it hit on Thursday morning. The high-risk ‘Aussie’ has been supported by a jump in risk sentiment following the Federal Reserve’s decision to maintain a cautious approach to future rate rises. But, with the Reserve Bank of Australia unlikely to tighten domestic policy anytime soon, there is potential for GBP/AUD to trend higher over the coming week.
New Zealand Dollar
GBP/NZD cooled from a two-month high on Friday as traders locked in profit from Thursday’s sturdy gains. However the ‘Kiwi’ remains under pressure due to last week’s disappointing gross domestic product print of 0.4%, which underwhelmed expectations of 0.7%. The softer-than-anticipated reading marked the slowest quarterly expansion since mid-2015 and this compromised demand for the high-beta Antipodean currency.