Potential for Pound Sterling (GBP) Exchange Rates to Appreciate Further as Sanguine GDP Boosts BoE Rate Hike Bets
The Pound enjoyed a strong day on the currency markets yesterday, appreciating versus all of its most-traded peers following sanguine economic growth figures.
Beating expectations of 0.3%, the third quarter UK GDP report printed at 0.4% thanks to solid growth in the dominant service sector. Increases in IT, motor and retail sales contributed to the stronger-than-anticipated figure, while manufacturing output also improved.
The 0.4% figure is lower than the long-term average of around 0.7% quarterly growth, but given the current climate of Brexit uncertainty and political instability, traders were pleased with the result.
Sterling has the potential to pick-up steam over the next week, with investors now more confident that the Bank of England will act to raise interest rates for the first time in over a decade on 2 November.
Pound to Euro (GBP/EUR) Exchange Rate Rebounds 70 Pips Ahead of ECB Policy Announcement
The Pound to Euro exchange rate rose by around 70 pips yesterday to strike its highest level in a week as BoE rate hike bets increased following upbeat UK growth data.
The Euro was subject to some positive data of its own, with each of the German IFO surveys coming in higher-than-anticipated. Business climate beat forecasts of 115.1 with a score of 116.7, while expectations for future performance rose from 107.5 to 109.1. However, the single currency remained insensitive to the German figures ahead of this afternoon’s policy statement from the European Central Bank.
The ECB is expected to leave rates on hold and strike a cautionary tone, which could depress demand for the Euro. Any talk of reining in monetary loosening, however, could give the single currency a shot in the arm.
Pound to US Dollar (GBP/USD) Exchange Rate Rallies 120 Pips
The Pound also hit a weekly high versus the US Dollar yesterday, with GBP/USD strengthening by around 120 pips.
The US durable goods report cheered US traders, with a score of 2.2% that smashed market expectations of 1.0%. However, the ‘Greenback’ failed to catch a bid against the surging Sterling due to rising expectations of a near-term interest rate hike from the Bank of England.
Going forward we could see ‘Cable’ make further gains if the upward momentum drives the Pound above technical resistance. Of course this depends on Brexit negotiations going smoothly, as any sign that deadlock has set back in could derail confidence in the UK currency.
Pound to Canadian Dollar Exchange Rate Jumps 300 Pips to 4-Month High on Dovish BoC
Sterling soared by an impressive 300 pips against the Canadian Dollar yesterday, striking a four-month high, as sturdy UK GDP data boosted UK rate expectations and a dovish statement from the Bank of Canada weighed heavily on the ‘Loonie’.
The BoC left rates on hold at 1.00%, as expected, but sentiment towards the domestic currency soured in reaction to comments suggesting the Canadian Dollar would have a ‘dampening impact’ on inflation in 2018.
The central bank projected that inflation would rise close to the 2.0% target next year, but with little indication that CPI would overshoot, the chances of rate rises were seen to have decreased.
Pound to Australian Dollar Exchange Rate Set to Push Above 4-Month Highs
The Pound to Australian Dollar exchange rate rallied by around 350 pips yesterday, hitting a new four-month high as Sterling received a boost from better-than-forecast UK GDP numbers for the third quarter.
Sterling could continue to grow versus the ‘Aussie’ over the next few weeks, with market sentiment towards the Antipodean currency fairly soft right now. Australian CPI came in at 1.8% yesterday, underwhelming hopes of a 2.0% score, which only added to the Australian Dollar’s woes.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Hits 16-Month High
The Pound to New Zealand Dollar exchange rate struck a fresh 16-month high yesterday after registering around 270 pips of daily gains. The ‘Kiwi’ could struggle to recover in the near-term due to concerns that the nation’s new coalition government is planning to alter the Reserve Bank of New Zealand’s remit in a way that may not be conducive to future rate hikes.
Date Released Today
12:45 EUR European Central Bank Rate Decision (OCT 26) High 0.00%
13:30 EUR ECB press conference after Governing Council meeting High
13:30 USD Advance Goods Trade Balance (SEP) High -$64.0b