Exchange rate sentiment towards Pound Sterling (GBP) has begun to pick up this week to see the currency retake ground against Euro (EUR) and the American Dollar (USD)
Foreign exchange rate markets saw the demand for the Pound Sterling (GBP) was generally dented in the early weeks of the year following weak Industrial Production data and more dovish tone of the latest Bank of England (BoE) meeting minutes.
Both the Euro (EUR) and US Dollar (USD) have largely benefitted from heighted trader risk aversion, as persistent stock market volatility and concerns with China’s slowing economic growth weigh heavily on investor confidence.
However, after falling to a seven-year low of 1.4237 ahead of the weekend the Pound Sterling to US Dollar (GBP/USD) exchange rate has since been seeing some gains as investors lock in profit.
Here are the latest rates for your reference:
On Wednesday the Euro to British Pound exchange rate (EUR/GBP) converts at 0.859
FX markets see the pound vs euro exchange rate converting at 1.165.
The live inter-bank GBP-USD spot rate is quoted as 1.245 today.
The live inter-bank GBP-AUD spot rate is quoted as 1.918 today.
NB: the forex rates mentioned above, revised as of 24th Apr 2024, are inter-bank prices that will require a margin from your bank. Foreign exchange brokers can save up to 5% on international payments in comparison to the banks.
The appeal of the British Pound (GBP) exchange rate was bolstered on Tuesday by the revelation that UK inflation had experienced a minor uptick in December, even though inflationary pressure within the domestic economy remains a long way short of the BoE’s 2% target.
Nevertheless pundits remain largely convinced that the BoE will hold off on an interest rate increase for some months to come, particularly as the upcoming European Union membership referendum weighs on the economic outlook of the UK and policymaker confidence.
As such the UK Pound is unlikely to hold onto its current gains for long, with James Knightley, Senior Economist at ING, noting:
’Given that inflation remains so soft and with tomorrow’s UK labour report set to show a further slowing in the pace of wage growth, the Bank of England is under no pressure to respond.’
Weak Eurozone CPI Increases Speculation of Further ECB Easing Measures, Euro (EUR) Declines
The outlook for the Eurozone, meanwhile, does not appear overly positive as inflation was confirmed to have slipped back to 0.2% in December and the latest German ZEW Economic Sentiment Survey showed a sharp decline in domestic optimism.
This poor performance, and the recent embroilment of Renault in the Volkswagen emissions scandal, suggest that downside risks are mounting for the currency union, in spite of market turmoil having boosted the safe-haven Euro.
As the European Central Bank (ECB) will meet to discuss monetary policy on Thursday the Euro to Pound Sterling (EUR/GBP) exchange rate is forecast to trend lower, in spite of the odds remaining low that policymakers will opt to expand quantitative easing measures further at this juncture.
US Dollar (USD) Exchange Rate Trends Lower despite Chinese GDP Hitting Twenty-Five Year Low
Stock markets have been reassured on Tuesday in spite of China’s December GDP having fallen to a twenty-five year low of 6.9%, as this result was ultimately in line with forecast and boosted hopes that further economic stimulus might be imminent.
With the Federal Open Market Committee (FOMC) unlikely to achieve its target of four interest rate hikes over the course of 2016 the US Dollar has continued to weaken against many of the majors, ceding back gains made on risk averse trading.
Wednesday’s US Consumer Price Index report is expected to show that inflation within the world’s largest economy rose further in December, with this stronger US data likely to shore up the US Dollar to Pound Sterling (USD/GBP) exchange rate.
UPDATE: Sterling Rocked by Dovish BoE Governor
Sterling's initial gains on Tuesday were short-lived after BoE Governor Mark Carney delivered a dovish speech in which he stated that policymakers were not considering hiking the cash rate any time soon.
Wednesday morning has seen the Pound extend losses versus the Euro and US Dollar as Carney's dovish speech continues to weigh on investor confidence.
Some investors have quipped that BoE Governor Mark Carney may return to Canada in 2008 (when his term ends) without ever having adjusted the benchmark rate. If the situation shows no signs of changing over the past few months, the Pound is unlikely to stage a notable rebound.