Upbeat Bank of England Outlook on Interest Rates Sends Pound Sterling Shooting Higher
Although the Monetary Policy Committee (MPC) voted unanimously to keep interest rates frozen at 0.5%, the latest meeting minutes stated that the Bank of England thinks it may need to hike interest rates faster than it predicted just three months ago.
Odds for an interest rate hike in May subsequently leapt from 50% to 67%.
A slew of UK data, including industrial production and trade figures for December, could cause significant volatility for Pound Sterling.
Solid Euro Marginally Slows GBP/EUR Exchange Rate Gains, despite Disappointing ECB Bulletin
The Pound Sterling to Euro exchange rate gained 1.1% yesterday following the Bank of England’s latest announcements.
Elsewhere, the Euro had managed to shrug off a disappointing European Central Bank (ECB) Economic Bulletin.
The latest forecasts continue to project sturdy economic growth in the Eurozone, but also concluded – as is becoming typical with forecasts for the currency bloc – that this strength would not transfer through to inflation. This means that the likelihood of the Governing Council tightening monetary policy any time soon remains slim.
US Dollar Softens as Fed’s Harker Backs Only Three Rate Hikes in 2018; GBP/USD Races Higher
The US Dollar was on soft form yesterday as markets withdrew to the Pound thanks to its greater upside potential.
Also weighing on the US Dollar were comments from Federal Reserve official Patrick Harker, after he said that he still believed three rate hikes were necessary this year.
Markets had begun to hope that the Federal Open Market Committee (FOMC) may hike four times during 2018. Still, Harker is not a voting member this year, so the US Dollar largely held above opening levels elsewhere, although GBP/USD exchange rates soared higher.
Canadian Dollar Most Popular Commodity Currency, but GBP/CAD Still Shoots Higher
While the Canadian Dollar was weak against the safe haven currencies, with GBP/CAD obviously bounding higher, the ‘Loonie’ was the most popular of the commodity trio, rising against the Australian Dollar and New Zealand Dollar.
CAD was supported versus its commodity peers by a poll from Reuters that showed the Canadian Dollar was expected to strengthen during 2018 on anticipation of more Bank of Canada (BOC) interest rate hikes and pressure on the US Dollar.
Canadian change in employment and unemployment rate figures for January could undermine the Canadian Dollar this afternoon, given that forecasts are for the joblessness rate to tick higher to 5.8%.
GBP/AUD Exchange Rates Bullish as RBA Governor Remains Dovish
The GBP/AUD exchange rate was up 1.2% towards the end of the day yesterday.
Markets were steering clear of the Australian Dollar elsewhere as well, in part thanks to a fall in the fourth-quarter NAB business confidence index and a speech from Reserve Bank of Australia (RBA) Governor Philip Lowe, in which he repeated his claim that interest rates were going nowhere anytime soon.
Neutral RBNZ Monetary Policy Stance Helps GBP/NZD Gains Accelerate
The GBP/NZD exchange rate unsurprisingly raced higher yesterday, although the New Zealand Dollar was on soft form elsewhere anyway.
The Reserve Bank of New Zealand (RBNZ) announced its latest interest rate freeze on Wednesday night and signalled that the official cash rate was likely to remain unchanged for some time.
Assistant Governor of the RBNZ John McDermott claimed the bank would continue to hold a neutral stance on monetary policy.