GBP/EUR Hits 1.40, GBP/USD Brushes 1.55 Following BoE Interest Rate Decision
The Bank of England (BoE) might have left policy unaltered, as expected by economists, but the belief that this week’s inflation report could contain positive overtones kept the Pound supported on Monday.
Sterling extended previous gains against several of its most traded peers and was up 0.9% against the Euro as the Greek negotiations failed to progress the increasingly desperate bailout situation.
A default from the Hellenic nation tomorrow could prompt a troubling Euro slide.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trading in the region of 1.3901
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trading in the region of 1.5494
Pound Sterling (GBP) Exchange Rate Holds UK Election Gains before BoE Announcement
At the close of last week the Pound surged against peers like the Euro and US Dollar as investors responded to a very unexpected outcome to the UK general election.
A hung parliament had been expected so the fact that the Conservatives actually won an outright majority was viewed as Pound-positive and bolstered the British currency.
Sterling largely held these gains over the weekend and is unlikely to be much moved by today’s Bank of England (BoE) interest rate announcement.
The central bank is expected to leave both interest rates and quantitative easing unchanged.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trading in the region of 1.3800
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5426
Friday’s unexpected outright UK election win for the Conservative party saw the Pound Sterling to Euro (GBP/EUR) exchange rate post its biggest gain for six years and pushed the Pound Sterling to US Dollar (GBP/USD) exchange rate above 1.55 prior to the release of the US Non Farm Payrolls report.
GBP/EUR, GBP/USD Exchange Rate News: Pound Sterling Trends Higher against Euro and US Dollar after Surprising UK Election Win for the Conservatives
Weeks of campaigning, backbiting and political uncertainty culminated in a very surprising outcome to the UK general election on Friday and both the Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates experienced considerable movement before the weekend.
Although all the major pre-election polls saw the Conservative and Labour parties neck-and-neck, the exit poll released after the ballot closed estimated that the Tories would actually achieve 316 seats and leave Labour trailing far behind.
The prospect of another Conservative-led government and the continuation of current policy measures appeared to go down very well with investors and the Pound posted immediate, widespread gains. As well as advancing by 2% and 1.5% against the Euro and US Dollar respectively, the Pound rallied against both the Australian and New Zealand Dollars.
Sterling held this advance as the votes were counted and it transpired that the Conservatives had actually secured enough seats to govern the country alone – an outcome no one had anticipated.
BBC Economics Editor Robert Peston said of the development; ‘To state the obvious, investors love the Tories’ general election victory. There are a few reasons. One (no surprise here) is that Labour’s threat of breaking up banks and imposing energy price caps has been lifted. Second is that investors have been discounting days and weeks of wrangling after polling day over who would form the government – and so they are semi-euphoric that we already know who’s in charge. Third, many investors tend to be economically conservative and instinctively Conservative.’
Similarly, analyst Nick Parsons noted; ‘The market’s reaction is all about stability and continuity. We’ve had an extreme period of volatility in the run up to this election and now, at last, we are getting some certainty about the future.’
Pound Sterling to Euro (GBP/EUR) Exchange Rate News: Mixed German Data Impacts Euro as Schaeuble Warns Greece Could Default
While the UK election was the main cause of Pound Sterling to Euro (GBP/EUR) exchange rate fluctuations on Friday, developments in the Eurozone also had an impact.
The appeal of the Euro dimmed following the publication of below-forecast German Industrial Production numbers, but declines were limited as trade data for the Eurozone’s largest economy printed positively.
The ongoing negotiations between Greece and its creditors also remained in focus, and while some quarters remain optimistic that an accord will be reached, others are less certain.
German Finance Minister Wolfgang Schaeuble, one of the many high-profile officials who has expressed frustration with the lack of progress, appeared to be firing a warning shot on Saturday as he commented on the possibility of a government defaulting by accident.
By holding out on the hope of striking a better austerity deal, Greece is risking its place in the Eurozone.
During an interview Schaeuble stated; ‘Experience elsewhere in the world has shown that a country can suddenly become unable to pay its bills. […] If the [negotiations fail], it won’t be because of us.’
Now that the UK election is out of the way, the Greek situation will resume being a major cause of volatility in the GBP/EUR exchange rate. On Monday Eurozone finance ministers will be meeting with the European Central Bank (ECB) and attempting to get past the current impasse.
Any positive developments will boost the Euro, while negative ones will weigh on the common currency.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast – US Non Farm Payrolls Report Keeps September Interest Rate Hike Hopes Alive, ‘Cable’ Trims Gains
Before the close of trade on Friday the Pound Sterling to US Dollar (GBP/USD) exchange rate trimmed some of its earlier gains following the publication of the US Non-Farm Payrolls report.
The US jobs data might have fallen slightly short of forecasts, but the US unemployment rate was still shown to have eased from 5.5% to 5.4%, supporting the case in favour of a September interest rate adjustment from the Federal Reserve and bolstering the ‘Greenback.’
In the view of economist Mark Vitner; ‘As long as we are adding jobs at a strong pace, at around 200,000 monthly, the economy should be able to withstand a slight increase in interest rates.’
Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast – Bank of England (BoE) Interest Rate Decision Ahead
Although the UK’s employment data will be driving GBP/EUR and GBP/USD exchange rate fluctuations in the week ahead, investors will also be focusing on the Bank of England (BoE) interest rate decision.
The UK’s deflationary outlook, a dip in domestic ecostats and the prospect of political uncertainty following the general election have kept BoE policymakers dovish in recent months.
However, now the election result has restored balance, the previously hawkish contingent of the Monetary Policy Committee may resume voting for an immediate interest rate hike.
While we won’t find out the breakdown of this week’s vote until the meeting minutes are published, any hints of a sooner-rather-than-later interest rate hike from the BoE will be Pound-supportive.
This week a deterioration in Greek bailout negotiations, coupled with positive UK news, could push the Pound Sterling to Euro (GBP/EUR) exchange rate back up to the 1.40 level.
On Sunday the Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3803, the Euro to Pound Sterling exchange rate was trading at 0.7261, the US Dollar to Pound Sterling (USD/GBP) exchange rate was trading in the region of 0.6469 and the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5458.