- BoE held interest rates at 0.5% at latest policy meeting
- Stronger Eurozone inflation failed to shore up Euro
- GBP/USD trended narrowly after disappointing US CPI
- US consumer confidence forecast to have climbed in April
Pound Sterling (GBP) Dented after BoE Left Rates on Hold for Eighty-Fifth Session
Thursday’s Bank of England (BoE) interest rate decision saw the Monetary Policy Committee (MPC) opt to leave rates at their record low of 0.5% for the eighty-fifth month in a row. With policy kept loose for more than seven years now the reaction of markets was not especially positive, prompting the Pound (GBP) to weaken across the board. Policymakers also reiterated concerns that uncertainty regarding the upcoming EU membership referendum is having a detrimental impact on the domestic economy, suggesting that the BoE is likely to remain on hold for some months yet. However, as James Knightley of ING notes:
‘Given the underlying strength of the economy and rising medium-term inflation pressures we still think a November rate hike is possible.’
As traders re-evaluated their initial dovish reaction to the announcement the Pound began to recover ground against rivals. Although Friday’s UK Construction Output figures failed to show as strong an improvement in productivity as investors had hoped, the Pound maintained an uptrend ahead of the weekend.
Greek Worries Continued to Hamper Euro (EUR) Exchange Rate
While the Eurozone’s Consumer Price Index was unexpectedly revised upwards for March, this failed to particularly support the Euro (EUR). Despite Greece showing a sharper-than-expected fall in consumer prices, the currency union as a whole edged out of deflation territory, clocking in at 0.0% on the year. This would suggest that the European Central Bank (ECB) will not feel the need to loosen monetary policy further in the near future, as persistently weak inflation has long been a major concern of the central bank.
The outlook of the Greek economy remained a major deterrent to investors this week, even though creditors are due to restart bailout review discussions on Monday. There are worries that the sticking points of pension reforms, bad debt and the possibility of debt relief could prove immovable and continue to derail the possibility of an imminent resolution. This is particularly concerning as the summer months will see the Hellenic nation due to repay significant sums to both the IMF and the ECB, something which could trigger another Eurozone crisis if the country is not in a position to pay.
Softened US Inflation Weighs Down US Dollar (USD)
Initially investors were inclined to dismiss the bearish implications of the latest US CPI data, which showed that inflation had unexpectedly dipped in March. Expectations had been for a modest uptick to 1.1%, making the disappointment of the decline to 0.9% worse. Nevertheless, this did not deter markets from continuing to bet on the possibility that the Fed will opt to raise interest rates again in the near future, particularly as global market conditions appear to be improving.
Some of that defiant bullishness wore off on Friday morning, pushing the US Dollar to Pound Sterling (USD/GBP) exchange rate into a small downtrend as confidence faltered somewhat. Forecasts suggest that the April University of Michigan Confidence Index will show a moderate increase in optimism to rise from 91 to 92. However, given the recent trend of disappointing US data this expected improvement in sentiment could be overstated, although a stronger showing may push the ‘Greenback’ on to fresh gains against rivals.
Current GBP, EUR, USD Exchange Rates
At the time of writing, the Pound Sterling to Euro (GBP/EUR) exchange rate was trending higher at 1.2551, while the Pound Sterling to US Dollar (GBP/USD) pairing was trending narrowly around 1.4142. Meanwhile, the Euro to US Dollar (EUR/USD) exchange rate was on an uptrend in the region of 1.1268.