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Pound Bounces Back against Euro and US Dollar as BoE Rate Hike Odds Rise

The Pound was greatly weakened by BoE news on Wednesday but today has seen a sharp reversal, with GBP EUR and GBP USD exchange rates soaring on further BoE developments.

  • GBP EUR rate climbs to 1.1339 – GBP USD trades up at 1.2937
  • Pound advances on trader hopes of 2017 interest rate hike – BoE’s McCafferty repeats hawkish outlook
  • Euro unsettled by inflation rate figures – German CPI rise offset by French and Spanish drops
  • US Dollar damaged by Fed forecasts – Economists anticipate slower pace of rate hikes

The latest GBP fluctuations have been triggered by changing expectations of a near-term UK interest rate hike.

Pound Boosted by BoE Official’s Repeated Push for Rate Hike

Having tumbled on Wednesday due to Bank of England (BoE) news, the Pound has since rallied against both the Euro and US Dollar. Respectively hitting rates of 1.1339 and 1.2937, the Pound has risen by over 0.3% against both peers.

Sterling initially slumped on Wednesday, after BoE official Ben Broadbent spoke against the idea of a near-term UK interest rate hike.

Since then, fellow BoE official Ian McCafferty has gone in the other direction, declaring;

‘As of today, I would not be changing my position [on interest rates]’.

McCafferty voted to raise interest rates at the BoE’s last meeting, so this has been considered a strong hint that there will be at least one vote for higher interest rates in August.

The next high-impact UK data will be Tuesday’s inflation rate figures for June. These are forecast to show a slight annual drop, which would at least decrease the intensity of current UK wage squeeze conditions.

Euro Unsettled by Mixed Eurozone Inflation Stats

The Euro has advanced slightly against the US Dollar today, but has conversely made a minor loss against the Pound.

This mixed movement comes from a spread of finalised Eurozone inflation rate figures for June.

Positive news has consisted of rising German inflation, but less helpfully, both France and Spain have posted drops in their CPI levels.

Ireland’s inflation figures for June are upcoming today, but the next major Euro movement may not come until Friday’s Eurozone trade balance announcement. This latter data release is predicted to show a surplus expansion, which may trigger a Euro to Pound rally.

US Dollar Remains Soft on Fears of Fed Chair Dovishness

The US Dollar’s recent weakness comes after the first day of testimony by Federal Reserve Chair Janet Yellen.

Speaking on Wednesday, Yellen stated that while US interest rates could rise further in the future, the rate at which interest rate hikes would occur might slow.

This is due to a desire to keep monetary policy loose, which means that the recent burst of Fed policy activity may drop off in the coming months.

Apart from Yellen’s second day of testimony on monetary policy today, the US Dollar could also be influenced by speeches from Fed officials Lael Brainard and Charles Evans.

Both policymakers are considered dovish when it comes to monetary policy, so the US Dollar may be devalued by any cautious comments.

Current Interbank GBP EUR USD Exchange Rates

At the time of writing, the Pound to Euro (GBP EUR) exchange rate was trading at 1.1339 and the Pound to US Dollar (GBP USD) exchange rate was trading at 1.2937.