Pound Sterling (GBP) Exchange Rates Inch Higher Following Big Drop
Predictably, the British Pound inched higher versus most of the majors on Friday as traders locked in profit from Thursday’s rout. UK service sector data exceeded analysts’ expectations, printing at 55.6 in October compared to forecasts of just 53.3, but Sterling’s gains were limited by the recent realisation that UK interest rates are unlikely to rise in the next year.
Having undertaken its first piece of tightening for over a decade, the Bank of England intimated that it currently plans to hike rates by just 50 basis points between now and 2020.
This cautious outlook could change, of course, if Brexit negotiations progress smoothly and British data impresses. Indeed, the composite October private sector PMI score of 55.8 smashed forecasts of 53.8 and was seen to suggest quarterly growth of around 0.5% in the fourth quarter.
If GDP continues to accelerate from the 0.2%-0.3% rates seen at the start of the year then we could see BoE rate expectations start to build up again.
Stability Possible for the Pound to Euro Exchange Rate
The Pound Sterling to Euro (GBP/EUR) exchange rate rallied by over half a cent on Friday as a six-month high UK services print helped investors decide that Thursday’s sharp Sterling declines may have been overdone.
The potential for a near-term UK rate rise looks dim, but the British economy has proved surprisingly resilient in the face of profound Brexit and political uncertainty, suggesting that there is potential for further upwards surprises.
Nevertheless, there are only a couple of important ecostats due for release this week (UK industrial and manufacturing production numbers), meaning that GBP/EUR is likely to trade relatively flatly over the next few days.
Of course, any unexpected Brexit news could easily change the outlook for Sterling. Progress in the talks could send the Pound higher, while setbacks could benefit the single currency.
Pound to US Dollar Exchange Rate Could Struggle in Run-up to Expected Fed Hike in December
Sterling’s attempted rebound versus the US Dollar (GBP/USD) on Friday was shot down by mostly positive American labour data.
The headline unemployment rate slumped to 4.1%, its lowest level since the year 2000, while October’s non-farm payrolls report printed at 261,000. October’s score was actually lower than expectations of 313,000 but investors, and the US Dollar, were buoyed by upward revisions to the previous two months’ scores.
September was revised up from -33,000 to +18,000, while August was upgraded from 169,000 to 208,000. Overall, the report painted a fairly optimistic picture of the US jobs market, suggesting that the economy has mostly recovered from Hurricanes Harvey and Irma.
With most investors predicting a rate rise from the Federal Reserve next month, it’s difficult to see the ‘Greenback’ suffering any major setbacks between now and December.
Pound to Canadian Dollar Exchange Rate Sinks as March BOC Bets Surge
Although the Pound started to mount a recovery versus the Canadian Dollar (GBP/CAD) on Friday morning following the upbeat British service sector print, demand for the ‘Loonie’ spiked during the afternoon following sanguine jobs data.
Bank of Canada rate hike expectations have dropped off recently but Friday’s labour report saw hike bets increase as full-time employment increased by 88,700 and wage growth hit its highest level for 18 months. Markets are now pricing in an 88% chance of BOC tightening in March.
Pound to Australian Dollar Exchange Rate Rallies 150 Pips
Sterling appreciated by around 150 pips versus the Australian Dollar (GBP/AUD) on Friday as profit taking stances sent the Pound higher.
The ‘Aussie’ Dollar, meanwhile, slumped across the board following news that domestic retail sales stagnated in September, when traders had been primed for a 0.4% expansion.
Later this evening a report on Australian construction output is tipped to come in around the 54.7 mark; anything higher could give the Antipodean a boost, while anything lower could weigh.
Pound to New Zealand Dollar Exchange Rate Inches Higher
The Pound to New Zealand Dollar (GBP/NZD) xchange rate strengthened slightly on Friday, rising by around a third of a cent as sturdy UK services data helped boost Sterling following Thursday’s sobering BoE policy statement.
This week NZD exchange rate movement will most likely be caused by the latest dairy auction results and the Reserve Bank of New Zealand’s (RBNZ) interest rate decision.