Following an interview given by Bank of England (BoE) governor Mark Carney, in which he attempted to guide rate hike speculations, the Pound rallied against most of the majors yesterday. Last week Carney shocked markets by switching focus from unemployment to wage growth when considering an appropriate time to start hiking rates. However in the interview Carney intimated that interest rates may rise irrespective of wage growth, even if wages continue to lag behind inflation.
There are a couple of potential reasons for the ‘unreliable boyfriend’s’ change in tactics. It could be an attempt to ready markets ahead of this week’s publication of the BoE minutes report. Many analysts predict that the minutes will reveal at least one policymaker had voted for a rate hike earlier in the month. The other potential reason for the reversal could be in relation to accusations that the bank has been subject to political pressure from Chancellor George Osborne and co. to keep rates low until after the general election in May.
Laura Parsons of Future Currency Forecast said this of the upcoming BoE meeting minutes; ‘Looking further ahead, the publication of minutes from the Bank of England’s latest policy meeting could have a profound impact on the direction taken by the GBP/EUR exchange rate this week. If the minutes show that even one member of the Monetary Policy Committee voted in favour of increasing interest rates at the last gathering the Pound could surge across the board.’
Sterling strengthened considerably against the Euro yesterday after Carney’s rate hike comments prompted traders to ditch the single currency in response to last week’s negative Gross Domestic Product (GDP) data for the Eurozone and its largest economies.
The Euro escaped relatively unscathed last week when Eurozone growth was shown to have stagnated in the second quarter. This was largely because the Pound’s dismal performance overshadowed the weak European data. With BoE rate hike speculation back in full swing the Pound asserted itself above technical resistance against the single currency.
US Dollar (USD)
The Pound to US Dollar exchange rate gained by around half a cent yesterday, climbing through resistance at 1.67, as a result of Carney’s latest remarks.
With a full domestic data docket today the US Dollar is likely to gain strength if it meets or exceeds forecast figures. It is anticipated that British inflation is to drop from 1.9% to 1.8% during July which could have a negative impact on ‘Cable’ (GBP/USD). US inflation data also has a high likelihood of weakening the Pound to ‘Greenback’ (USD) exchange rate, as the Consumer Price Index (CPI) is forecast to remain in line with the bank’s 2.0% target last month.
Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate was fairly static yesterday. Today’s duo of UK consumer price index data, however, may ignite movement between the pair. If the US CPI data meets with forecast figures the result could be detrimental to the Canadian Dollar in that it could be interpreted as increasing the probability of a rise in US borrowing costs. If UK inflation data is seen to meet with or exceed the previous figure it is highly likely to boost the Pound. Conversely, should it show a negative result, the Canadian Dollar will strengthen.
Australian Dollar (AUD)
Although Sterling rose slightly against the ‘Aussie’ (AUD) yesterday as a result of the Carney interview, the Pound struggled to register any meaningful gain. The RBA meeting minutes were fairly neutral in tone but the fact that no future rate cuts were mentioned meant that the ‘Aussie’ was modestly supported.
New Zealand Dollar (NZD)
Carney’s comments helped raise the Pound to New Zealand Dollar exchange rate by around half a cent yesterday. The interview given by BoE governor Mark Carney overshadowed positive New Zealand domestic results, which showed their performance of services index to have risen from 55.2 to 58.4 in July.
South African Rand (ZAR)
The Pound Sterling to South African Rand gained yesterday following Mark Carney’s Sunday Times interview. With little by way of domestic data the Rand is expected to remain static as traders prepare for tomorrow’s South African inflation figures. Movement for the Pound to South African Rand exchange rate is likely to be dictated by UK domestic data.