News that economists see it as increasingly likely that the Bank of England (BoE) will cut interest rates during 2016 weakened Pound Sterling (GBP) today. The dwindling likelihood of inaction by the Federal Reserve at the next policy meeting is keeping the Euro (EUR) strong on the sliding threat of increased policy divergence, while the US Dollar (USD) is making use of overseas weakness in order to advance.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Bearish as Expectations of BoE Rate Cut Grow
Pound investors could soon be longing for the ‘good old days’ of UK rate freezes. According to a Bloomberg monthly survey of economists, the Bank of England (BoE) has a 23% likelihood of cutting interest rates during the coming year. While still below a 1 in 4 chance, the figure has leapt up 13% since the previous month’s poll. The general consensus is that the BoE will keep rates on hold until the aftermath of the ‘Brexit’ referendum in June. However, in the event of a ‘Yes’ vote to leave the European Union, the Monetary Policy Committee (MPC) may be forced to respond with a rate cut in order to stabilise the weakened economy.
Meanwhile, the Euro has been strengthened thanks to the dwindling prospect of monetary tightening in the US. With Mario Draghi having signalled an end to interest rate cuts and the Federal Reserve looking unlikely to hike rates tomorrow, the prospect of widening policy divergence is looking slim today. Such inaction won’t strengthen the US Dollar, so the Euro is free to appreciate thanks to their inverse correlation.
Eurozone Employment Change data for the final quarter of 2015 is due out later during the European session, but other than that there is no high impact data set to be released today.
Prospect of Fed Inaction Limits US Dollar to Pound Sterling (USD/GBP) Exchange Rate Gains
With the Yen (JPY) bullish after the Bank of Japan (BOJ) left monetary policy untouched at their latest meeting and the Euro strengthening as well, there are plenty of promising safe-haven assets on the market already, softening demand for the US Dollar. Although in positive territory against the majority of the major currencies, ‘Greenback’ (USD) advances are more reliant upon overseas weakness than domestic strength today.
Approaching Advance Retail Sales figures, which are expected to show a minor fall for February, are also cooling demand for the ‘Buck’. Investors are mostly interested in the outcome of tomorrow’s Federal Open Market Committee (FOMC) policy meeting, although it is widely expected that there will be no change to monetary policy.
Current GBP, EUR, USD Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2790, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trading around 0.7820.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4187, while the US Dollar to Pound Sterling (USD/GBP) exchange rate is trading around 0.7046.