Pound Leaps Higher as BoE Proves Hawkish

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Headlines

  • RBA Governor Reiterated Concerns Over Wage Growth – Interest rates look set to remain on hold for foreseeable future
  • Pound Surged Higher on BoE Hawkishness – Upgraded growth forecasts encourage bets on May rate hike
  • USD Exchange Rate Gains Faltered on Less Confident Fed Comments – Markets continue to speculate over likely pace of monetary tightening
  • New Zealand Dollar Softened by RBNZ Commitment to Low Interest Rates – Signs of weakening inflation may prompt further losses

Australian Dollar

Comments from Reserve Bank of Australia (RBA) Governor Philip Lowe did nothing to shore up AUD exchange rates overnight. Investors were generally disappointed by the tone of the speech, with Lowe reiterating concerns over high household debt and lacklustre wage growth. All in all, this suggests that the central bank will leave interest rates on hold for the foreseeable future, unless there is a significant improvement in earnings. A dip in the NAB business confidence index further dented the Australian Dollar.

If the quarterly Statement on Monetary Policy proves similarly cautious in outlook then the Australian Dollar is likely to remain on a weaker footing ahead of the weekend.

Sterling

GBP exchange rates rallied sharply in the wake of the Bank of England’s (BoE) rate decision, even though the Monetary Policy Committee (MPC) voted unanimously in favour of leaving interest rates on hold. The details of the accompanying minutes and quarterly Inflation Report were rather more upbeat, however, with the BoE revising up its growth forecasts. This encouraged bets that the central bank will raise interest rates in May, boosting the Pound across the board.

However, Sterling may struggle to maintain its positive momentum this evening if either the latest UK visible trade balance or NIESR gross domestic product data disappoints.

Euro

Although the European Central Bank (ECB) Economic Bulletin remained distinctly dovish in nature this failed to particularly weigh down the Euro. While the Bulletin noted that an ‘ample’ degree of monetary stimulus remains necessary to support the Eurozone economy this came as little surprise to markets. EUR exchange rates were also able to largely shrug off a disappointing raft of German trade data, despite a sharp uptick in import volumes narrowing the trade surplus of the Eurozone’s powerhouse economy.

With no fresh Eurozone data set for release today the mood towards the single currency is likely to remain somewhat muted.

US Dollar

Some of the bullishness of the US Dollar eased overnight as Philadelphia Fed President Patrick Harker took a more measured view on the subject of monetary policy. As Harker indicated a preference for just two or three interest rate hikes over the course of 2018 this put a dampener on recent market speculation. However, as he is not a voting member of the Federal Open Market Committee (FOMC) this year the negative impact of Harker’s comments was a little limited.

USD exchange rates look set to face further volatility as a result of Fed policymaker commentary in the near term, with the odds of a March rate hike fluctuating.

Canadian Dollar

A minor dip in the latest Canadian housing starts and new housing price index figures gave CAD exchange rates little cause for confidence on Thursday. These weaker showings somewhat undermined the sense of optimism in the health of the domestic housing market, reversing much of the previous day’s boost. As oil prices continued their downtrend in response to rising US production the appeal of the commodity-correlated Canadian Dollar naturally faltered.

Further weakness could be in store for CAD exchange rates as forecasts point towards an increase in January’s unemployment rate tonight.

New Zealand Dollar

Unsurprisingly, the Reserve Bank of New Zealand (RBNZ) reiterated the fact that it sees interest rates remaining on hold for at least another year. While this was no real shock to investors demand for the New Zealand Dollar still weakened as a result of this latest commentary. In the absence of any significant sense of market risk appetite NZD exchange rates found little in the way of support during trade on Thursday.

Another contraction in the ANZ truckometer may encourage further selling of the New Zealand Dollar today.

 Data Released

February 9th 07:00 NZD ANZ Truckometer (MoM) (JAN)
February 9th 10:30 AUD RBA Quarterly Statement on Monetary Policy
February 9th 19:30 GBP Visible Trade Balance (DEC) -11.5 billion
February 9th 22:00 GBP NIESR Gross Domestic Product Estimate (JAN) 0.5%
February 9th 23:30 CAD Unemployment Rate (JAN) 5.8%

Post by TorFX

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