GBP Rates could Gain with BoE Rate Hike Expectations Second only to Canada over the next 12 Months
The Pound softened a little bit versus some of the majors yesterday, as comments from UK Chancellor of the Exchequer Philip Hammond on the possibility of no Brexit deal rattled markets a tad.
However, futures markets are pricing in 50 basis points of Bank of England interest rate rises over the next 12 months – the most in the developed world bar the Bank of Canada. This hawkish outlook could allow Sterling to trend higher over the coming weeks and months – but only if Brexit and political issues sink back into the sidelines.
Spanish PM Rajoy’s Hard Stance Could Boost Euro (EUR) Exchange Rates
The Pound to Euro exchange rate softened slightly yesterday as fears of a ‘bad tempered’ Brexit were stoked by comments from UK Chancellor Philip Hammond.
Although Hammond said that he was not planning to commit additional money to a no deal Brexit fund, the Chancellor warned that the negotiations could break down if no progress is forthcoming. Furthermore, Hammond noted that the consequences of not securing a new trade deal with Europe could include grounded flights and a lockdown on data sharing.
Any indication that the relations are souring could easily drive GBP/EUR lower.
While the single currency was also boosted by news that Catalan leader Carles Puigdemont appears to have retracted his initial declaration of independence.
Spanish Prime Minister Mariano Rajoy has given the Catalan regional government eight days to confirm whether it has declared independence or not, if so he plans to suspend the region’s political autonomy. This would ratchet up tensions but would present a solution to the immediate crisis and would probably soothe market tensions and bolster the appeal of the Euro.
Battle of the Central Banks: Will GBP/USD Respond to Hawkish Fed or BoE?
‘Cable’ drifted higher by around a third of a cent yesterday, despite the latest Federal Reserve minutes report leaving the door open to an expected rate hike in December.
The minutes revealed that some policymakers were concerned that low inflation was unlikely to budge, while others said that the outlook depended on data in the coming months.
The minutes were taken on September 20 and since then we’ve had a couple of decade-high US private sector reports and a sturdy jump in wage growth that could easily translate into rising consumer prices in the medium-term.
It will be interesting to see which currency comes out on top over the next few months, with both the Fed and the BoE predicted to hike rates. It does seem, however, like there is scope for further Sterling gains in the run-up to the November BoE meeting.
Pound to Canadian Dollar Exchange Rate Could Suffer from Oil Revival
An improving outlook for oil prices could bolster the appeal of the commodity-correlated Canadian Dollar going forward. Indeed, GBP/CAD softened by around a third of a cent yesterday following news that OPEC had seen a 200,000 barrel jump in global demand – and this trend could continue if production cuts continue to drive oil prices higher.
Pound to Australian Dollar Exchange Rate Touches 10-Day High as ‘Aussie’ Sentiment Remains Soft
The Pound to Australian Dollar exchange rate touched a 10-day high yesterday as negative sentiment towards the ‘Aussie’ continued to drag the Antipodean lower.
The outlook appears bleak for the Australian Dollar if iron ore prices continue to tumble and US interest rates continue to rise. Considerable cash flows could leave the country if Australia loses its yield differential over the more stable US Dollar.
Could Pound to New Zealand Dollar Exchange Rate Hit New 5-Month Highs?
Sterling reached a fresh fortnightly high against the New Zealand Dollar yesterday, meaning that GBP/NZD has now appreciated by over 10 cents since late August. This bullish momentum could drive the Pound towards new highs over the coming days. Indeed, Sterling is only around one cent away from touching new five-month highs.
Data Released Today
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (AUG)
13:30 USD Initial Jobless Claims (OCT 07)
15:30 EUR ECB President Draghi in Panel in Washington