Pound Sterling Exchange Rates Forecast to Rise by Speculative Investors
Sentiment towards Sterling softened a little yesterday following news that growth in Britain’s dominant service sector had slowed during November.
Disappointing forecasts of 55.0, the services PMI cooled from 55.6 to 53.8 last month.
Chris Williamson of Markit Economics, who compiled the report, noted that activity in the sector had been hit by uncertainty surrounding the UK’s economic outlook, which he said was ‘linked commonly to Brexit’.
However, looking ahead, most analysts believe that the British government will be able to resolve the Irish border issue and therefore reach a Brexit divorce agreement with the EU. If this happens we could see the Pound appreciate across the board.
Indeed, for the first time since the Bank of England raised interest rates in November, the futures market shows that more speculative investors are betting on rises than falls in the Sterling exchange rate.
Today’s Pound Sterling Headlines
UK services output slows – Pound dips.
Markets bet on rising GBP – Brexit deal needed.
GBP/EUR exchange rate stabilises – GBP/USD exchange rate softens slightly.
BoC rate decision on tap – Hawkish RBA boosts Australian Dollar.
Pound to Euro (GBP/EUR) Exchange Rate Stabilises as Investors Back British Government to Get Brexit Deal
The Pound to Euro (GBP/EUR) exchange rate tumbled yesterday morning as UK service sector data underwhelmed, however, demand for GBP/EUR improved later in the day as traders bet that a Brexit divorce settlement will be reached over the next 10 days.
Although investors are betting on further Sterling strength, this trade all depends on Britain making sufficient progress in the Brexit divorce talks to begin discussing future trade.
And, even if this hurdle is cleared, there is likely to be many more impasses as the negotiations unfold over the next few years. This bumpy road is likely to create volatility in Sterling pairs, meaning any rallies could be swiftly reversed.
Pound to US Dollar (GBP/USD) Exchange Rate Dips on US Tax Reform Optimism
The Pound softened a little bit against the US Dollar yesterday as hopes of US tax reform caused some analysts to predict a further four rate hikes from the Federal Reserve in 2018.
The Fed is widely tipped to raise rates in December but, given the soft inflationary outlook, markets had started to question whether the US central bank could justify tightening policy aggressively next year.
But the newly revived tax cut proposal could boost growth in the short-term, simultaneously bolstering inflation and adding to calls for additional rate rises.
The ‘Greenback’ would likely have registered larger gains on the news of the tax reform progress had it not been for speculation that President Donald Trump could become embroiled in a scandal involving Russia and the FBI.
As both the tax and the Russian story develop, there could be huge implications for the US Dollar.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Flat Ahead of Bank of Canada Interest Rate Decision
After fluctuating through the morning, the Pound to Canadian Dollar exchange rate steadied during the afternoon.
Movement in GBP/CAD today will likely be dictated by this afternoon’s interest rate decision from the Bank of Canada.
Most traders expect the bank to leave rates on hold at 1.00%, meaning a surprise rate hike could give the ‘Loonie’ a giant boost.
Even hints at future rate rises in 2018 could bolster the Canadian Dollar’s appeal, while cautionary rhetoric could dampen demand.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Softens as Hawkish RBA Rhetoric Boosts ‘Aussie’ Dollar Outlook
The Pound to Australian Dollar exchange rate dropped over half a cent yesterday as surprisingly upbeat comments from the Reserve Bank of Australia gave the ‘Aussie’ a boost.
The RBA left rates unchanged at 1.50%, but the Antipodean currency jumped in response to comments suggesting that the outlook for non-mining business investment had improved, the labour market was expected to flourish and economic growth was tipped to hit 3.0% over the next few years.
While the RBA has not changed rates for over 16 months, traders are now considering the possibility that the bank could wake from its slumber in the New Year.
Rising Dairy Prices Weigh on Pound to New Zealand Dollar (GBP/NZD) Exchange Rate
The Pound to New Zealand Dollar exchange rate slid by around a cent yesterday as soft UK service sector output weighed on demand for Sterling.
The commodity-sensitive ‘Kiwi’ was also bolstered by news that the price of dairy, the nation’s most-lucrative export, rose slightly at the latest auction.
The 0.4% increase snapped a run of four consecutive declines and was seen to improve the outlook for the New Zealand economy.
Data Affecting Today’s GBP Forecast
CAD Bank of Canada Rate Decision (DEC 06)