Today’s Pound Sterling Headlines
Brexit headlines in focus – Pound Sterling rallies as reports suggest EU and UK agree divorce bill.
GBP/EUR exchange rate jumps 70 pips – BoE warns of disorderly Brexit.
GBP/USD exchange rate touches new 8-week high – Incoming Fed President strikes cautionary tone.
GBP/CAD exchange rate hits monthly high – Sterling rebounds across the board.
Pound Sterling (GBP) Exchange Rates Jump on Reports of EU Brexit Bill Agreement
Pound Sterling (GBP) exchange rates initially softened across the board yesterday morning as Northern Irish border tensions continued weighing on demand.
However, Sterling bounced back during the evening when British newspapers started reporting that the UK and the EU had agreed on the terms of Britain’s exit payment.
The reports suggest that the British government has caved in to EU demands and offered a gross financial settlement of £89 billion that will likely be whittled down to around £50 billion.
It’s believed that officials are deliberately avoiding putting a specific figure on the final payment, so as not to put additional pressure on UK Prime Minister Theresa May.
Despite the Pound’s rally yesterday evening, investors fear that political turbulence in the Republic of Ireland could prevent the UK government from resolving the border issue before an EU-imposed deadline of 4th December.
If European leaders are dissatisfied with Britain’s divorce terms next Monday, they will not agree to start discussing future Brexit trade relations.
Under this scenario, hopes of the UK clinching a transitional trade agreement anytime soon would be dashed and Sterling would likely plummet against the majors.
Pound to Euro (GBP/EUR) Exchange Rate Rallies 70 Pips Despite BoE Disorderly Brexit Warnings
The Pound to Euro (GBP/EUR) exchange rate dipped -30 pips yesterday morning as Irish borders issues remained a key concern for currency traders.
Sterling was also hit by comments from Bank of England Governor Mark Carney. The BoE chief noted that British banks had passed the Threadneedle Street’s annual stress tests, indicating that the UK banking system could just about support the real economy in the event of a disorderly Brexit.
However, the Governor went on to suggest that a chaotic Brexit, without a new EU trade deal, would likely lead to further depreciations in the Pound and pain for households and businesses.
However, GBP/EUR strengthened through the evening as traders got wind of reports suggesting Britain had agreed a Brexit divorce bill with the EU.
During today’s session, we could see the single currency inch higher if German inflation rises from 1.6% to 1.7%, as expected.
Pound to US Dollar (GBP/USD) Exchange Rate Touches New 8-Week High
Pound Sterling slumped by around a cent versus the US Dollar yesterday morning as Irish border issues led to soft demand for the UK currency. Later on, though, GBP/USD clawed back its losses and briefly struck a new eight-week high on reports of a Brexit settlement.
Across the pond in the US, incoming Federal Reserve President Jerome Powell said that he expects ‘interest rates to rise somewhat further and the size of [the] balance sheet to gradually shrink’.
However, speaking to the Senate Banking Committee, Powell suggested that he would maintain the style of central banking employed by his predecessors Janet Yellen and Ben Bernanke.
Hinting that he would not be averse to further monetary easing if the economic situation deteriorated, Powell said: ‘We must be prepared to respond decisively and with appropriate force to new and unexpected threats to our nation’s financial stability and economic prosperity’.
The cautious statement suggests economic data will need to remain positive in the US if we are to see further rate rises from the Fed in 2018.
In the short-term, GBP/USD could come under a little bit of selling pressure this afternoon if third quarter US GDP is revised up from 3.0% to 3.2%, as expected.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Touches New November High
The Pound to Canadian Dollar (GBP/CAD) exchange rate rose by almost 100 pips to strike a fresh four-week high yesterday following reports that Britain and the EU had agreed the terms of the UK’s exit payment.
Bank of Canada Governor Stephen Poloz said that that an improving economy had allowed the BoC to ‘take rate cuts off the table’ and predicted that sturdy employment growth over the next two years would ‘add to sustainability of existing debt’.
Demand for the Canadian Dollar increased a little bit following the speech, however, analysts will need more hawkish rhetoric from the central bank before they start betting on a near-term BoC rate hike.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Hits New 6-Month High
Sterling slid by around -140 pips versus the Australian Dollar yesterday morning, touching its lowest level in almost a fortnight, before soaring to a new six-month high.
However, the Pound remains susceptible to hard Brexit fears as political instability in the Republic of Ireland threatens to impede the British government’s progress in Brexit talks with the EU.
Pound to New Zealand Dollar Exchange Rate Rebounds from 2-Week Low
Speculation that the ruling coalition government in New Zealand may soften its stance on economic reform is starting to boost sentiment towards the New Zealand Dollar, and GBP/NZD even tumbled to a fortnightly low yesterday.
However, positive Brexit reports sent Sterling higher versus the ‘Kiwi’ during the evening.
Data Affecting Today’s GBP Exchange Rate Forecast
EUR German Consumer Price Index (YoY) (NOV P)
USD Gross Domestic Product Annualized (QoQ) (3Q S)
USD Yellen Appears before Joint Economic Committee of Congress