The British Pound to Euro (GBP/EUR) exchange rate continued to trend higher in the second half of Wednesday’s European session while the British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates dropped on Federal Reserve rate hike speculation.
In addition, the UK NIESR Gross Domestic Product Estimate softened from 0.7% to 0.6% in the three months through February.
Earlier… The British Pound to Euro (GBP/EUR) exchange rate climbed in Wednesday’s session as investors interpreted European Central Bank (ECB) President Mario Draghi’s words on quantitative easing (QE) while the British Pound to Canadian Dollar (GBP/CAD) and British Pound to US Dollar (GBP/USD) exchange rates were trending in a tight range.
President Draghi stated in his speech in Frankfurt that the QE programme launched on Monday is already having a positive effect.
Draghi stated: ‘We saw a further fall in the sovereign yields of Portugal and other formerly distressed countires in spite of the renewed Greek crisis. This suggests that the asset purchase programme may be shielding Euro area countries from contagion.’
Earlier… The British Pound to Euro (GBP/EUR) exchange rate gained in the first half of Tuesday while the British Pound to Canadian Dollar (GBP/CAD) and British Pound to US Dollar (GBP/USD) exchange rates fell as Federal Reserve rate hike speculation mounted.
The US Dollar jumped to an 11-year high versus the Euro (USD/EUR) after Fed official President Richard Fisher suggested that confidence in the US economic recovery was mounting.
Furthermore, the Dallas Fed President warned that a delay in hiking rates would be bad for the US economy and could push it into recession.
Strategist Todd Elmer commented: ‘If the strong data flow keeps up, the market may shift its view toward earlier tightening by the Fed. When we look at the Dollar appreciation that we’ve seen over time, clearly a large component of that–in 2014 in particular–reflected the fact that the rest of the world looked quite weak. There remains significant breathing room for the strong Dollar trend to continue.’
Earlier… The British Pound to Euro (GBP/EUR), British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates were all trending higher in the early part of Monday’s European session as UK business costs fell—the first decline in the latter six years.
BDO suggested that the fall in February’s prices were largely accredited to the recent tumble in oil values which have caused heavy downward pressure on inflation the world over.
BDO representative Peter Hemington commented: ‘Lower input prices will help entrench the recovery, as consumers gain more spending power.’
The British Pound to US Dollar (GBP/USD) exchange rate recorded its largest decline in four years on Friday after upbeat US data emerged. The British Pound to US Dollar (GBP/USD) exchange rate tumbled by 2.5% last week taking it to $1.5055—the largest drop since May 2010.
Fed Interest Rate Hikes Forecast on Strong US Jobs Data – US Dollar (USD) Rallies
US Change in Non-Farm Payrolls showed the creation of 295K jobs in February, far more substantial than the 235K forecast. In addition, the US Unemployment Rate dropped from 5.7% to 5.5%—an event that saw investor sentiment in the ‘Buck’ rise monumentally as speculation for a Federal Reserve rate hike heightened.
In the current climate, many investors believe the Federal Reserve could be the first to hike interest rates in the Group of Seven (G7) developed nations since the onset of the global financial crisis. The Bank of England (BoE) and Federal Reserve have been in close contention to be the first major central bank to hike rates for some time and speculation is likely to play on the GBP/USD exchange rate for the foreseeable future.
Foreign exchange strategist John Hardy commented: ‘Everyone is falling all over each other to price a June Fed rate hike. I don’t see why the Pound should be particularly stronger than it has been.’
Monday is scheduled to be a relatively quiet day for US and UK domestic data with only US Labour Market Conditions Index Change stats emerging. In addition, both BoE and Fed officials will be speaking throughout Monday’s session and could be a source of movement for the British Pound to US Dollar (GBP/USD) currency pair.
Meanwhile, the Euro was offered support against some other currency majors on Monday when the European Central Bank (ECB) began its quantitative easing (QE) programme. Central banks began buying German government bonds in an attempt to boost growth within the Eurozone.
ECB and Eurosystem national central banks have, as previously announced, started purchases under the Public Sector Purchase Programme.
— ECB (@ecb) March 9, 2015
Barclays analyst Cagdas Aksu commented: ‘The ECB may well have to bid bonds aggressively to procure them from their holders, in particular to avoid question marks around the credibility of its QE delivery. We also expect the core-periphery spreads of Italy and Spain versus Germany to grind tighter in this environment.’
However, amid ongoing Greek negotiations the Euro is extremely vulnerable and any negative developments in the situation could see investor sentiment wane dramatically.
Monday saw Greek finance minister Yanis Varoufakis suggest that Greece should hold a referendum to decide on its reform plans—a suggestion immediately shot down by Germany.
In addition, the proposals submitted by Greece have been met with opposition from Germany and some experts are now hypothesising that a referendum or even early election could come if the recently voted in Syriza party fail to renegotiate the current austerity deal successfully.
Varoufakis commented: ‘There could be problems. But, as my prime minister has said, we are not yet glued to our chairs. We can return to elections, call a referendum.’
The Canadian Dollar is also weaker as a result of strong US labour market data and falling oil prices. Crude tumbled again on Monday, falling to $49 a barrel. Furthermore, Goldman Sachs believes that the price of oil could soften substantially more to pressure it below $40 a barrel.
Goldman Sachs stated: ‘While we continue to forecast a strong demand recovery in 2015, we believe that sequentially weaker activity, the end of winter and the end of potential restocking demand, will lead to a sequential deceleration in demand-growth as we enter the spring.’
The Canadian Dollar to British Pound (CAD/GBP) exchange rate may fluctuate later in Monday’s session with the release of Canadian Housing Starts figures.
Canada’s Housing Starts slipped in February with only 156.3K; economists had forecast 179.0K after January’s 187.0K. However, the ‘Loonie’ was little affected as economists suggest that the fall in housing demand was a result of severe winter weather.
British Pound Exchange Rate Forecast: GBP/USD, GBP/EUR, GBP/CAD
The British Pound exchange rate could experience movement later in Monday’s session with BoE representative Andrew Hauser speaking in London. However, Tuesday could be far more influential when BoE Governor Mark Carney speaks at the House of Lords Committee. Other central bank officials will also be speaking throughout Tuesday’s session.
The British Pound to US Dollar (GBP/USD) exchange rate is trading at 1.5111. The British Pound to Canadian Dollar (GBP/CAD) exchange rate is residing at 1.9043. The British Pound to Euro (GBP/EUR) exchange rate is trending in the region of 1.3872.