Robust UK Inflation Report Could Prove ‘Optimistic’ for Pound Sterling (GBP) Exchange Rates
Despite UK Prime Minister Theresa May’s assertion that there was a ‘new sense of optimism’ in the Brexit talks since Brussels cleared the way for the discussions to move onto future trade, Pound Sterling (GBP) exchange rates found themselves drifting lower at the beginning of this week’s session.
However, market data suggested that this was chiefly a consequence of traders taking out long Sterling positions (bets that the Pound will rise in the future, which rely on the trader first selling GBP).
This suggests investors share the Prime Minister’s optimism. And we could see their faith instantly repaid if this morning’s UK inflation print points to rising price pressures. Economists are primed for a score of 3.0%, meaning anything higher could bolster Sterling, while anything lower could weigh.
Live Pound Sterling Headlines
Pound drifts lower – Theresa May ‘optimistic’ over Brexit.
UK CPI on tap – Score higher than 3% could bolster Sterling.
Fed policy announcement due this week – US central bank expected to raise rates.
Pound to Australian Dollar exchange rate slips from 17-month high – GBP/AUD still up 17 cents since September.
Pound to Euro (GBP/EUR) Exchange Rate Forecast to Strengthen this Week on Hawkish Bank of England
The single currency posted mild gains versus the Pound yesterday but the potential for the Pound to Euro (GBP/EUR) exchange rate to appreciate in the near-term cannot be ignored.
Investors will be looking to the UK CPI report for direction this morning, but the Bank of England’s policy statement later in the week could also prove pivotal. Having previously warned of the potential catastrophic consequences of a disorderly Brexit, BoE policymakers could choose to comment on the recent breakthrough in negotiations.
If Governor Mark Carney expresses even the smallest inkling of ‘optimism’ then it could be interpreted as a nod towards tighter policy going forward, which could boost the appeal of the Pound.
Pound to US Dollar (GBP/USD) Exchange Rate Awaits Federal Reserve Policy Statement
The Federal Reserve is widely expected to raise borrowing costs by 25 basis points later this week, meaning anything other than a hawkish statement of intent at the FOMC meeting could condemn US Dollar exchange rates to depreciation.
However, the recent progress in President Donald Trump’s tax reform push could lead to faster-than-expected US growth next year, which in turn could drive wages higher and prompt a spike in inflation.
If the Fed acknowledges the potential for tighter policy in 2018 than is currently anticipated, GBP/USD could suffer as the ‘Greenback’ surges.
Dovish Bank of Canada Could Support Pound to Canadian Dollar (GBP/CAD) Forecast
A slight uptick in oil prices helped push the commodity-sensitive Canadian Dollar (CAD) a little higher versus Sterling (GBP) yesterday, however the ‘Loonie’ remains susceptible to concerns over the Bank of Canada’s softening stance on interest rates. Previously one of the most hawkish major central banks, the BoC has been sounding increasingly cautious in recent months.
And if BoC Governor Stephen Poloz strikes a dovish tone during a scheduled speech later this week, it could undermine the appeal of the Canadian Dollar.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Slips from 17-Month High
The Pound to Australian Dollar (GBP/AUD) exchange rate has dipped slightly over the past few days due to investors locking in profit from last week’s 17-month high. Despite this little blip, GBP/AUD is still trading around 17 cents higher than it was in September.
Further gains appear possible in the medium-term but we could see volatility as the year draws to a close.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Softens as ‘Market-Friendly’ New RBNZ Governor Boosts ‘Kiwi’
New Zealand Dollar (NZD) exchange rates responded positively to the appointment of Adrian Orr as the Governor of the Reserve Bank of New Zealand. Orr, who traders view as ‘market-friendly’, will take up the position in March 2018.
The decision was seen to take away some of the uncertainty associated with the new coalition government and the ‘Kiwi’ has flourished since the announcement.
Data Affecting Today’s Pound Sterling Forecasts
09:30 GBP Consumer Price Index (YoY) (NOV)
10:00 EUR Eurozone ZEW Survey (Economic Sentiment) (DEC)
22:15 AUD RBA Governor Lowe Gives Speech in Sydney