Pound exchange rates bolstered by Brexit, BoE optimism

Philip McHugh July 26th 2018 - 2 minute read

The pound traded robustly during yesterday’s session, with the currency buoyed by positive sentiment regarding Brexit and the Bank of England (BoE) August rate decision.

Sterling continues to hold steady this morning, with GBP/EUR flat at €1.1245, and GBP/USD stable at $1.3187, while GBP/CAD and GBP/NZD are both standing their ground at C$1.7197 and NZ$1.9307 respectively. Once again only GBP/AUD is showing any real movement today as the pairing climbs to AU$1.7751.

Looking ahead, the European Central Bank’s (ECB) latest policy meeting is expected to be the centre of attention today, with the euro potentially sliding should recent trade fears lead to a dovish outlook from the bank.

What’s been happening?

The pound firmed on Wednesday, seeing off advances from the majority of its peers thanks to renewed optimism over Brexit.

This shift has been largely driven by Theresa May’s decision to get directly involved with Brexit negotiations, but also by comments from Chancellor Philip Hammond, who said that the UK is ‘well positioned’ to secure a good deal with the EU.

Rising expectations of an August rate hike also lent some support to Sterling yesterday, with markets now pricing in an 80% chance of a rate rise next month despite last week’s soft economic data.

The GBP/EUR exchange rate briefly jumped to a new one-week high on Wednesday, before quickly falling back in the evening as a meeting between US President Donald Trump and European Commission President Jean-Claude Juncker helped to relieve fears of a possible trade war between the EU and US.

While details are still a little scarce Trump declared it was a ‘very big’ day as he and Juncker announced plans to work towards eliminating trade barriers.

Meanwhile the positive trade developments actually bolstered the GBP/USD exchange rate, with easing trade tensions reducing demand for safe-haven currencies such as the US dollar.

Also weakening the US dollar was the release of the latest US housing data, with a faster-than-expected fall in new homes sales slightly undermining the ‘Greenback’.

What’s coming up?

Looking ahead, the pound may struggle to find any momentum today thanks to a lull in domestic data, with markets potentially left to ponder on next week’s rate decision from the Bank of England (BoE).

Meanwhile the euro could see some significant movement this afternoon as the ECB concludes its latest policy meeting.

No policy changes are expected as a result of this month’s rate decision, but with this being the first meeting since the announcement that the bank would be winding down its quantitative easing EUR investors will likely be looking for some hints on how this will be done.

Other than that, the bank’s forward guidance is likely to be in the spotlight, with the euro potentially drifting lower if the recent trade tensions with the US leads for a more cautious outlook from the ECB.

Finally the US dollar could swing higher during today’s session, with the currency poised to jump if US durable goods orders are shown to have rebounded in June, as forecast.

Written by
Philip McHugh

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