Pound Sterling Exchange Rates Rise as Strong Inflation Data Boosts Bank of England Rate Hike Odds

Strong Inflation Data Boosts Pound Sterling Exchange Rates after Lifting May Rate Hike Odds

Pound Sterling was on strong form versus most of its major currency peers yesterday, thanks to the latest above-forecast inflation figures.

January’s consumer price index showed a year-on-year hold at 3% and a rise in core price growth to 2.7%. Some analysts believed this would put more pressure on the Bank of England (BoE) to hike interest rates, potentially in May.

Weak Appetite for US Dollar and Solid Eurozone Data Forecasts Weaken GBP/EUR

There was nothing on the Eurozone data calendar yesterday to boost the Euro, yet GBP/EUR found itself slightly below opening levels. Markets were feeling gloomy about the US Dollar and tomorrow’s Eurozone and US data is likely to boost EUR even further, so it wasn’t worth abandoning the Euro in favour of the Pound yesterday.

Expect plenty of GBP/EUR exchange rate volatility today, with German and Italian fourth-quarter GDP figures set for release, following this morning’s already-published Q4 Eurozone data.

GBP/USD Exchange Rate on Solid Form as Fed Mester Suggests Three, Not Four, 2018 Rate Hikes

Markets were disappointed by comments from Federal Reserve official Loretta Mester yesterday, which allowed the GBP/USD exchange rate to make solid gains.

Mester stated that she believed interest rates should rise at a pace similar to that of 2017. This would mean three rate hikes; her comments come at a time when markets are tentatively beginning to hope the Federal Reserve may raise borrowing costs four times.

US inflation data for January, released this afternoon, could have a significant impact upon odds of an interest rate hike from the Federal Reserve in March. Forecasts for the releases, as well as the contemporaneous advance retail sales report, suggest weakening growth, which could send USD tumbling.

Oil Slumps on Low Market Risk-Appetite; GBP/CAD Exchange Rate Surges

With global stock markets still in turmoil and markets awaiting key data from the US and Eurozone economies today, there was little appetite for risk on the markets yesterday.

This pushed the GBP/CAD exchange rate up significantly, as the Canadian Dollar reacted to a slump of -1% for WTI crude and -0.8% for Brent crude oil.

Positive Business Sentiment Data Marginally Undermines GBP/AUD Strength

Like the Canadian Dollar, the Australian Dollar yesterday had to contend with low market appetite for risk. However, the GBP/AUD exchange rate’s gains were curbed slightly thanks to positive Australian data.

The ‘Aussie’ found a sliver of support from the latest NAB business conditions index, which climbed from 13 to 19 and the business confidence index, which climbed from 10 to 12.

Strong NZ Government Budget Figures Prevent GBP/NZD Exchange Rate from Advancing

Given the sentiment on the market yesterday, one would expect the New Zealand Dollar to have slumped. But instead the GBP/NZD exchange rate was trapped around opening levels, thanks to a rosy set of financial figures published by the New Zealand government.

Amongst the good news was the fact that tax receipts had climbed NZ$600 above-forecast, while the operating budget for the second-half of 2017 recorded a surplus of NZ$1.1 billion; over three times the predicted NZ$311.

Luke Trevail

Luke studied Journalism at university but quickly moved into the financial sector, initially working in retail banking before joining TorFX in 2007. As a Senior Account Manager Luke assists in overseeing the management of the company’s exposure to currency volatility. He uses his years of foreign exchange experience to produce regular news updates exploring the latest currency movements.

Contact Luke Trevail