The Pound Sterling to Euro (GBP/EUR) exchange rate was trending lower on Wednesday while the Pound Sterling to Euro (GBP/USD) and Pound Sterling to Australian Dollar (GBP/AUD) exchange rates climbed ahead of Bank of England (BoE) meeting minutes and UK Unemployment Rate data.
Update: UK Unemployment failed to drop from 5.7% to 5.6% as economists had forecast and Weekly Earnings sank from 2.1% to 1.8%.
Earlier… The Pound Sterling to Euro (GBP/EUR), Pound Sterling to US Dollar (GBP/USD) and Pound Sterling to Australian Dollar (GBP/AUD) exchange rates were all trending lower in the first half of Tuesday’s European session, after Reserve Bank of Australia (RBA) meeting minutes emerged and ahead of ZEW’s German and Eurozone Economic Sentiment Surveys.
Update: The Pound Sterling exchange rate continued to decline as general election fears pressured the British currency lower.
The RBA meeting minutes revealed what many economists had forecast—further rate cuts could be on the cards. The Australian Dollar to US Dollar (AUD/USD) exchange rate hovered near a six-year low on the news at 0.7610. The AUD/USD currency pair had hit 0.7560 on 11th March, the weakest exchange rate since May 2009.
The RBA minutes stated that the bank ‘had judged it appropriate to hold the cash rate steady for the time being, while recognising that further easing over the period ahead may be appropriate to foster sustainable growth in demand while maintaining inflation consistent with the target.’
RBA Rate Cut Speculation to Pressure ‘Aussie’ Exchange Rate
Many economists believe that the central bank could cut rates again in the near future after making a 25 basis point adjustment in February.
Australia and New Zealand Banking Group representative Felicity Emmett commented: ‘As we’ve highlighted previously, history shows that the bank uses this language just prior to changing the cash rate. Over the past six years, they have used the phrase “time being” five times, and in each case the bank has moved the cash rate the following month.’
Meanwhile, the Euro is proving to be resilient this week amid a backdrop of Eurozone instability. Negotiations between Greece and its creditors regarding the nation’s austerity deal continue to be inconclusive—an unfavourable development as the country is running out of money.
Morgan Stanley now believes there’s a one in four chance that Greece will leave the Eurozone in the next six months.
However, Tuesday will see German Chancellor Angela Merkel and European Central Bank (ECB) President Mario Draghi meet to discuss the future of the Euro and the currency bloc, as well as the ECB’s quantitative easing (QE) and of course, Greece. ECB President Draghi spoke on Monday and suggested that the Eurozone was in recovery after a prolonged period of economic struggle, but asked for better political relations to build a stronger foundation.
Draghi stated: ‘Most indicators suggest a sustained recovery is taking hold. A nascent recovery provides us with a window of opportunity, with the conditions to press ahead with reforms that will make the Euro area less fragile and vulnerable to shocks.’
USD/GBP Fluctuations Forecast on FOMC Interest Rate Announcement and BoE Minutes
Meanwhile, the US Dollar is likely to fluctuate on Tuesday as investors anticipate the outcome of Wednesday’s Federal Open Market Committee (FOMC) meeting. The US Federal Reserve is currently pegged to be one of the only central banks capable of hiking interest rates this year and with a tightening labour market and some hawkish policymakers emerging, investors are forecasting increased borrowing costs by June.
Currency strategist Jason Simpson commented: ‘The big thing to watch is the FOMC and the impact that has on risk assets.’
Tuesday will see the release of US Building Permits and US Housing Starts figures which could influence US Dollar trading.
Pound Sterling Exchange Rate Forecast: GBP/EUR, GBP/USD, GBP/AUD
The Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to experience major swings on Wednesday with not only the FOMC interest rate announcement released, but also the Bank of England’s (BoE) latest meeting minutes.
Simpson continued: ‘If anything, you’d expect the minutes to be a little more dovish. It’s going to be quite difficult for the market, unless Sterling spikes higher, to push that first rate hike further into the future so I’m not overly constructive on gilts.’
Meanwhile, Tuesday could be an interesting day for the Pound Sterling to Euro (GBP/EUR) exchange rate with the release of ZEW’s German and Eurozone Economic Sentiment Surveys. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate could also experience further movement with Westpac’s Leading Index published later in Tuesday’s session. The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading at 1.4803. The Pound Sterling to Australian Dollar (GBP/AUD) exchange rate is reaching 1.9322. The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.3966.
