Pound Sterling Exchange Rates Rise on BoE Rate Hike Expectations
Despite concerns over the state of Britain’s public finances, Sterling ticked higher across the board yesterday as traders continued to buy into the Pound ahead of Thursday’s policy announcement from the Bank of England.
The Institute for Fiscal Studies (IFS) released a report yesterday suggesting that the UK deficit could stand at £36 billion in 2022, around twice as much as the £17 billion projected by the government back in March. The IFS noted that weak productivity would likely lead to depressed growth over the next five years, leaving the UK government with a budget black hole just shy of £20 billion.
However, the gloomy report did not lead to a dip in demand for the Pound due to rising expectations that the BoE will raise interest rates for the first time in over a decade on Thursday. The UK central bank is not likely to signal a more hawkish approach going forward, but Sterling may spike if Governor Mark Carney hints at further rate rises over the next year. Conversely, anything short of a 25 basis point rate hike could seriously undermine the Pound.
Pound to Euro Exchange Rate Could Slide from 1-Month High on Strong Eurozone GDP & CPI
The Pound to Euro exchange rate strengthened by around a third of a cent yesterday to hit its highest level for a month.
With BoE tightening expectations almost fully priced into Sterling now, there is potential for GBP/EUR to soften due to profit taking stances during today’s session. This would be even more likely if the Eurozone gross domestic product report shows quarterly growth of 0.5% in Q3, which would represent a faster expansion than the 0.4% registered in the UK.
Also on the agenda this morning is the Eurozone consumer price index reading, which is tipped to come in at 1.5%. A higher reading would lend support to the single currency, while anything lower could push Sterling to new monthly highs.
Pound to US Dollar Exchange Rate could Rally if Trump Russia Scandal Intensifies
The Pound to US Dollar exchange rate rallied by over 100 pips yesterday as core US PCE inflation remained subdued at just 1.3%. The figure is unlikely to prevent the Federal Reserve from hiking interest rates in December, but could delay any future tightening decisions. And the ‘Greenback’ could be susceptible to further losses over the next few days following the revelation that George Papadopoulos, former advisor to US President Donald Trump, lied to the FBI about the timings of meetings with alleged Russian connections.
At this moment in time it is difficult to predict how important Papadopoulos’ plea will prove, but if the story unravels further and the President becomes embroiled in a Russian scandal then it could have a negative influence on the US Dollar due to concerns over political stability.
Pound to Canadian Dollar Exchange Rate Appreciates Ahead of Canadian GDP
Sterling appreciated by around 100 pips versus the Canadian Dollar yesterday ahead of Canadian GDP data due for release this afternoon. If the August growth report shows a minimal expansion of 0.1% as expected then it could weigh on the ‘Loonie’.
The Pound could register further gains later in the evening when Bank of Canada Governor Stephen Poloz testifies to the finance committee. The BoC appears to have paused its hiking cycle and recent comments suggest a more cautious approach – if Poloz upholds this dovish view in his testimony then it could lead to further gains in GBP/CAD.
Pound to Australian Dollar Exchange Rate Could Hit New 4-Month High
The Pound to Australian Dollar exchange rate could hit a new four-month high today if Sterling manages to build on yesterday’s 50-pip gains. The UK currency is benefitting from UK rate hike expectations ahead of Thursday’s announcement from the BoE, while the ‘Aussie’ is currently coming under pressure following a softer-than-expected inflation report last week.
Pound to New Zealand Dollar Exchange Rate Could Soften on Strong NZ Labour Report
Sterling remained close to 16-month highs versus the New Zealand Dollar yesterday but the embattled ‘Kiwi’ could mount a little bit of a recovery this evening if employment data comes in positively.
The Antipodean currency has come under pressure in recent weeks due to concerns that the new coalition government could alter the Reserve Bank of New Zealand’s remit in a way that could dampen the outlook for interest rates. However, the ‘Kiwi’ Dollar could catch a bid this evening if unemployment dips from 4.8% to 4.7%, as expected.
Data Released Today
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (3Q A) Medium 0.5%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (OCT) High 1.5%
12:30 CAD Gross Domestic Product (MoM) (AUG) Medium 0.1%
14:00 USD Consumer Confidence Index (OCT) High 121
19:30 CAD Poloz and Wilkins testify at Finance Committee High