Update 2: Pound Sterling Steady after Bank of England Interest Rate Decision
After gaining in response to better-than-forecast UK retail sales figures, the Pound Sterling to US Dollar (GBP/USD) exchange rate stabilised following the Bank of England (BoE) interest rate decision.
The BoE left interest rates on hold (as expected) with all policymakers being in favour of borrowing costs remaining on hold.
According to Lloyds; ‘the view remained that as long as the economy continued to perform in line with expectations, further rate hikes would be needed to bring inflation back towards its 2% target. In November, the Committee were in broad agreement that this was consistent with a couple of quarter-point rate hikes over the forecast horizon. This view is consistent with the MPC’s longstanding mantra that the pace of future hikes is likely to be limited and gradual, a view very much reflected in current interest-rate market pricing, where the next hike is not expected until Q1 2019. However, they signalled a readiness to respond to developments in the economic outlook to ensure that inflation returned back towards its target.’
Pound Sterling exchange rates were little changed in the wake of the fairly neutral announcement, and USD was later boosted by upbeat retail sales data.
Update 1: GBP/USD Exchange Rate Rallies after Upbeat UK Retail Sales Data
The Pound Sterling to US Dollar (GBP/USD) exchange rate extended gains on Thursday as the UK published some impressive retail sales figures.
Retail sales jumped by 1.2% on the month (rather than the 0.4% expected) and 1.5% on the year.
Retail sales including auto fuel also smashed forecasts.
Rhian Murphy of the Office for National Statistics (ONS) noted; ‘Underlying retail sales growth remained reasonably strong in the last few months. Household goods stores had a good November, with a number of businesses saying that Black Friday promotions boosted sales.’
Pound Sterling Exchange Rates Tick Higher Following Slight Rise in UK Wages
Pound Sterling (GBP) exchange rates strengthened yesterday following the latest UK labour market report, which showed that average earnings ticked higher in October.
While the headline unemployment rate remained at a 42-year low of 4.3%, disappointing forecasts of 4.2%, the majority of traders focussed on a slight uptick in UK earnings, from 2.3% to 2.5%.
The rise in wages was seen to mildly increase the chances of tighter policy from the Bank of England. However, with inflation running much higher (at 3.1%) the UK economy could struggle in the medium-term as falling real wages weigh on consumer-led growth.
Pound to Euro (GBP/EUR) Exchange Rate Rallies Ahead of BoE & ECB Policy Announcements
A robust 3.7% expansion in Eurozone industrial production failed to lift the single currency versus the Pound yesterday, with the GBP/EUR exchange rate gaining around 30 pips following the publication of the UK wage growth figures.
Both the European Central Bank and the Bank of England are due to speak later today.
aNeither is expected to alter monetary policy at this juncture, but some traders reckon that BoE Governor Mark Carney could employ slightly more hawkish rhetoric now that Britain has reached an initial agreement with the EU over the terms of the its Brexit divorce bill.
If Carney explicitly references the progress in Brexit talks then we could see Sterling push ahead versus the Euro. On the other hand, cautious commentary from the central bank could certainly have a bearish impact on demand for the Pound.
Pound to US Dollar (GBP/USD) Exchange Rate Appreciates as Fed Avoids Changing 2018 Interest Rate Projections
The Pound Sterling to US Dollar (GBP/USD) exchange rate managed to rally by around half a cent during yesterday’s London session.
The move appeared to reflect a little bit of optimism around the 2.5% UK wage growth print and a little bit of pessimism around a surprisingly soft score of 1.7% for the core US consumer price index.
During the evening the Federal Reserve raised interest rates by 25 basis points. However, demand for the ‘Greenback’ was more sensitive to the Fed’s dot-plot projection graph, which showed that the bank still expects to raise interest rates three times in 2018.
Some investors had hoped for an upgrade to the Fed’s interest rate outlook and the US Dollar weakened as a result.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Rises Ahead of BoC Governor Poloz Speech
The Pound to Canadian Dollar (GBP/CAD) exchange rate appreciated by around half a cent yesterday as UK rate hike bets increased slightly following a rise in British wage growth.
And we could see Sterling register further gains versus the ‘Loonie’ later today when Bank of Canada Governor Stephen Poloz delivers a speech titled: ‘Three Things Keeping Me Awake at Night’.
If, as the insomniac title suggests, the speech contains concerns over the health of the Canadian economy then it could apply some negative pressure on the Canadian Dollar.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Extends Losses
The Pound to Australian Dollar’s (GBP/AUD) morning gains were swiftly erased during the North American session as risk appetite increased on bets that soft US inflation would prevent the Federal Reserve from accelerating its hiking cycle in 2018.
This view was backed up later on in the day when the Fed’s dot-plot graph showed that policymakers still expect rates to rise three times next year.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Touches Two-Week Low on Rising Risk Sentiment
The Pound Sterling to New Zealand Dollar (GBP/NZD) exchange rate struck a fortnightly low yesterday afternoon as rising risk sentiment bolstered the appeal of the risk sensitive ‘Kiwi’ Dollar.