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British Pound (GBP) Exchange Rate Forecast: GBP/EUR, GBP/USD, GBP/CAD – Fed, BoE, ECB in Focus – Stress Test Shows Banks Struggling

The British Pound to Euro (GBP/EUR) and British Pound to Canadian Dollar (GBP/CAD) exchange rates declined in the first half of Thursday’s trading while the British Pound to US Dollar (GBP/USD) exchange rate was trending higher after Federal Reserve stress test results.

The Fed noted that four of Wall Street’s largest banks struggled to pass the stress test scenarios and as a result sentiment in the ‘Buck’ fell.

Earlier… The British Pound to Euro (GBP/EUR) exchange rate was trending higher toward the close of Wednesday’s trading despite weaker UK data, while the British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates softened dramatically.

Speculation for a US Federal Reserve rate hike is dominating the market at the minute and US Advance Retail Sales and University of Michigan Confidence figures will be eyed closely by investors in the next few days.

Earlier… The British Pound to Euro (GBP/EUR) exchange rate was trending higher in Wednesday’s European session after European Central Bank (ECB) President Mario Draghi spoke, while the British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates softened slightly in anticipation of UK Industrial and Manufacturing Production figures.

However, the British Pound could soften further as Manufacturing Production fell to 1.9% in January on the year, rather than growing from 2.4% to 2.6% as forecast. Annual Industrial Production rose in line with predictions from 0.5% to 1.3%. The British Pound could fluctuate further in Wednesday’s session with the release of the UK NIESR Gross Domestic Product Estimate still to come.

Meanwhile, the Euro has been trending lower as a result of Greek negotiations taking an interesting turn. Tuesday saw Greek defence minister Panos Kammenos threaten that Greece would ‘flood Europe with migrants’ if Eurogroup heads fail to make an amicable decision regarding Greece’s austerity deal.

In addition, Greece has been forced to use rescue funds in order to survive as negotiations seem to be at a stalemate. Greece is due to pay 1.5 billion Euros to the International Monetary Fund (IMF) this month.

ECB’s Draghi Defends QE Programme and Suggests Effects are Evident Already

In addition, the European Central Bank began quantitative easing (QE) on Monday and President Mario Draghi claims that the programme has already taken effect.

Speaking in Frankfurt on Wednesday, Draghi commented: ‘We saw a further fall in the sovereign yields of Portugal and other formerly distressed countries in spite of the renewed Greek crisis. This suggests that the asset purchase programme may be shielding Euro area countries from contagion.’

‘We are aware that our measure may entail some financial stability risks but currently these risks are contained.’

Draghi also suggested that the slowdown in the Eurozone is reversing and economic growth should take an upswing in coming months.

Meanwhile, the US Dollar enjoyed support earlier this week when Dallas Federal Reserve President and Federal Open Market Committee (FOMC) policymaker, Richard Fisher, hinted that rate hikes should occur in the near future.

The US Dollar to Euro (USD/EUR) exchange rate approached a 12-year high as policy divergence between the Eurozone and the US couldn’t be made clearer; while the Federal Reserve looks to hike rates, the ECB is introducing further monetary stimulus.

Trading expert Michael James commented: ‘A continuation of Dollar strength and Euro destruction is certainly raising some concerns. I don’t think there was any one specific event or item that caused this, but the fact that it’s a trend that’s been going on for the last several weeks is concerning given the levels we’re at now.’

The US Dollar to British Pound (USD/GBP) exchange rate could be in for further fluctuations on Wednesday with the release of US MBA Mortgage Applications for the week through March 6th.

The Federal Reserve is also expected to release its second set of stress test results, which could have some impact on the ‘Greenback’.

However, the second half of the week is likely to be much more influential for USD/GBP trading with US Advance Retail Sales out on Thursday and University of Michigan Confidence published on Friday.

GBP/CAD Could Fluctuate on US Oil Inventories and Crude Price Developments

The neighbouring Canadian Dollar will also experience more exciting trading in the second half of the week with the release of Canada’s New Housing Price Index on Thursday and the highly significant Canadian Net Change in Employment and Unemployment Rate figures on Friday.

At present, the Canadian Unemployment Rate is forecast to increase from 6.6% to 6.7% if the economy sheds 5.0K jobs as forecast. Any unfavourable labour market data is likely to see the Canadian Dollar to British Pound (CAD/GBP) exchange rate soften as the ‘Loonie’ trends lower against other major currencies.

The Canadian Dollar is also extremely sensitive to any changes in oil prices as crude is Canada’s largest commodity and export. Wednesday saw oil values increase slightly ahead of US inventory data released later in the session. Crude oil inventories the week through March 6th are forecast to reach 4500K.

However, many industry experts are expecting US stockpile figures to be bearish.

One analyst stated: ‘This adds further to the global supply glut and ultimately will exert downward pressure to crude oil prices.’

British Pound (GBP) Exchange Rate Forecast: GBP/EUR, GBP/USD, GBP/CAD

The Bank of England will publish its quarterly bulletin on Thursday which could impact the British Pound exchange rate moderately. The Bank of England, like the Federal Reserve, is expected to begin hiking interest rates in the near future and therefore investors are paying close attention to any central bank statements.

UK Trade Balance figures will also be made available on Thursday and Bank of England Governor Mark Carney is scheduled to deliver a speech in Sheffield which could be another cause for GBP/EUR, GBP/USD and GBP/CAD movement.

The British Pound to US Dollar (GBP/USD) exchange rate is trading at 1.5048. The British Pound to Canadian Dollar (GBP/CAD) exchange rate is reaching 1.9102. The British Pound to Euro (GBP/EUR) exchange rate is trending in the region of 1.4199.