Pound exchange rate fluctuates as BoE hints at possible rate hikes

Philip McHugh June 8th 2018 - 2 minute read

Trade in the pound was mixed on Thursday, with some initial Brexit uncertainty being offset by the end of the session by hawkish comments from the Bank of England.  

Sterling sentiment is a little more upbeat this morning, with GBP/EUR ticking up to €1.1392, GBP/USD holding steady at $1.3417 and GBP/NZD stable at NZ$1.9130, while GBP/AUD and GBP/CAD have both advanced, striking AU$1.7689 and C$1.7451 respectively.

Looking ahead the pound may mount a comeback later today if the UK’s latest GDP estimate is revised higher, as expected…

What’s been happening?

The pound initially stumbled during Thursday’s trading session as markets were spooked by reports the Brexit secretary David Davis had pushed back against Prime Minster Theresa May’s acceptance of the EU backstop proposals.

However Sterling was able to claw its way higher again by the end of the day’s session following a speech by the Bank of England’s (BoE) Dave Ramsden.

Speaking in London, Ramsden suggested he supported the BoE analysis that the UK’s economic slowdown at the start of the year was likely to prove temporary, hinting that this could leave the door open for a rate hike from the bank by the end of 2018.

The GBP/EUR exchange rate saw its recent losses accelerate on Thursday, with the euro continuing to push higher on the back of speculation that the European Central Bank (ECB) could wind down its stimulus programme by the end of 2018.

This has been driven by hawkish comments from the ECB’s Chief Economist, Peter Praet, on Wednesday in which he suggested policymakers were increasingly confident regarding inflation and discussions to end its bond purchases could begin at the ECB’s next policy meeting.

Meanwhile the GBP/USD exchange rate also tumbled on Thursday, although the US dollar’s gains were capped somewhat by the increased demand for the euro.

Also weakening the appeal of the US dollar yesterday were jitters ahead of this weekend’s G7 summit in Canada, with investors fearing a confrontational tone from the US could further damage relations with trade partners, increasing the chances of a trade war.

What’s coming up?

Looking forward, the latest NIESR GDP estimate could breathe some life into the pound later this afternoon.
Economists forecast the latest growth estimate will indicate the UK economy is fairing a little better in the second quarter, with expectations the data will report that growth rose from 0.1% to 0.3% in the three months leading to May.

In the wake of some disappointing industrial production figures from Germany, the euro may find itself on the back foot today, especially in the absence of any other data to offset it.

Finally the US dollar may continue to struggle today as the latest US wholesale inventory figures are expected to show that inventories remained unchanged in April, an outcome which may indicate firms expect sales to remain weak at the start of the second quarter.

Written by
Philip McHugh

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