Pound weakens despite more confident BoE interest rate outlook

The Bank of England (BoE) seemed more upbeat yesterday over the outlook for monetary policy, but the pound was having none of it and continued to weaken.

The pound is on weak form this morning ahead of today's key economic data. The GBP/EUR exchange rate has fallen -0.1% to €1.1315, with GBP/USD down by a similar amount to US$1.3890. GBP/AUD has fallen -0.2% to AU$1.7798, GBP/NZD is also down -0.2% to NZ$1.8983, and GBP/CAD is down -0.1% to C$1.7635.

Keep reading to find out what UK and US central banks said yesterday that saw pound Sterling weaken and the US dollar strengthen…

What’s been happening?

Pound Sterling weakened yesterday, despite a more confident outlook for interest rates from the Bank of England.

Governor Mark Carney and policymakers Ben Broadbent, Andy Haldane, and Silvana Tenreyro speaking at an event in London suggested that the Monetary Policy Committee (MPC) would now need to hike interest rates three times in as many years.

Just a few weeks ago policymakers had stated that there would likely need to be only two interest rate hikes between now and the end of 2020.

This more confident attitude failed to boost the pound, however, with markets disappointed that Carney refused to be pinned down about when the first interest rate hike might come, leaving questions hanging over bets of a May rate hike.

GBP/EUR slipped lower yesterday, despite the euro being on poor form itself thanks to a run of worse-than-expected February PMIs for France, Germany, and the Eurozone as a whole.

Meanwhile, GBP/USD weakened as markets awaited the evening’s meeting minutes from the Federal Open Market Committee (FOMC).

The minutes proved that policymakers were feeling more confident at the latest gathering, revising up their growth and inflation predictions and suggesting that further rate hikes were still necessary to help keep the economy on track.

Some in the markets interpreted the latest minutes as attempting to signal that the Fed was aiming for the expected three rate hikes this year, but there was plenty to support bets of four rounds of tightening.

What’s coming up?

The second estimate of fourth-quarter UK GDP for 2017 will be released shortly; pound Sterling may not see much volatility if the reading does not deviate from initial projections.

The European Central Bank (ECB) is set to publish the accounts of its January monetary policy meeting, so it is likely the euro will experience some turbulence around midday as markets look to see whether the Governing Council has discussed any further adjustments to the quantitative easing programme.

Markets may be too preoccupied with the latest FOMC minutes to pay much attention to today’s US data, but if not the latest initial jobless claims and continuing claims figures could have an impact on the US dollar.