A predicted rate hike by the FED has kept the US Dollar soft, allowing a bullish Pound Sterling to climb, although Sterling has remained flat against the Euro.
With the Federal Reserve interest rate decision looming ever closer, the Pound Sterling (GBP) to US Dollar (USD) exchange rate is benefiting from increasing confidence that a US rate hike is on the cards.
The intense market speculation has allowed Pound Sterling exchange rates to trend bullishly, although the GBP-EUR conversion rate remains narrowly in the positive region ahead of tomorrow’s Bank of England (BoE) policy meeting.
Pound Sterling is currently rising 0.1% against the Euro and 0.8% against the US Dollar.
Pound Sterling has made strong gains across the board, despite warnings from the Bank of England’s financial policy committee (FPC) on the vulnerability of UK banks to emerging market debt.
According to the FPC: ‘Given the size of UK banks’ exposures to emerging market economies, there were likely to be risks to UK financial stability associated with the rapid buildup in emerging market debt.’
The minutes of the last FPC meeting show that the threat of cybercrime is also a concern for the BoE.
Pound to Euro (GBP/EUR) Exchange Rate Today: Traders Avoid Strengthening Pound Sterling
Pound to euro exchange rate trade has been subdued today as investors try to avoid strengthening Pound Sterling ahead of the Bank of England’s (BoE) interest rate decision due tomorrow during the London session.
A weak Pound to Euro exchange rate helps British exports, making goods more affordable for Eurozone-based businesses, thus boosting economic growth.
Pound Sterling is currently trading against the Euro in a range that hasn’t been seen since 2008, so any efforts to weaken the British asset will help motivate the BoE to increase interest rates.
US Dollar Exchange Rates Bearish as Fed Meeting Draws Near
The likelihood that the Federal Open Market Committee (FOMC) will decide to increase interest rates at their meeting next week continues to rise, with Chinese data now contributing to trader confidence.
Chinese inflation grew to 1.5% year-on-year (YoY) in November, up from 1.3% and 0.3% higher than forecast.
A strengthening world economy will help to give the FOMC confidence that markets can cope with a stronger US Dollar.
GBP, EUR and USD Exchange Rate Forecasts
More Chinese data, due tomorrow, could further improve the FOMC’s outlook on the world economy, with New Yuan Loans figures and the Money Supply M2 predicted to show an increase in financing.
Pound Sterling movement could be sluggish ahead of the BoE interest rate decision and Asset Purchase Target, although activity for the British asset has experienced less of a slowdown as the Monetary Policy Committee (MPC) are expected to make no changes to policy.
While the result of the decision may not have much of an impact, the release of the meeting minutes could spark movement if they give hints as to when the MPC intends to raise interest rates and by how much.
Pound Sterling Forecast: Refugee Crisis Could See Britain Leave EU, PM Warns
David Cameron has warned that the current refugee and migration crises in the European Union, as well as the current economic problems, could cool British attitudes towards the EU.
‘The short term reaction can be “get me out of here”, the longer term reaction is “we must find a better way of working with our partners because we share the same challenges”,’ Cameron told Spectator.
The UK is due to have a referendum on Britain’s membership of the EU before the end of 2017.
Pound Sterling is currently strong ahead of the Bank of England (BoE) interest rate decision later, while trading flat against the US Dollar.
No Change in Bank of England Policy Outlook
In a move that will come as a surprise to few, the Monetary Policy Committee have voted to leave interest rates at the current 0.50% level, with the state of quantitative easing remaining at 375b.
Ian McCafferty was the only MPC member to vote for a rise in interest rates, with the other eight members remaining dovish.
According to the meeting summary, ‘Ian McCafferty preferred to increase Bank Rate by 25 basis points, given his view that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections.’
GBP/EUR and GBP/USD Exchange Rates Down as MPC Meeting Minutes Reveal Dovish Stance
Although the result of yesterday’s Monetary Policy Committee (MPC) came as no surprise, Pound Sterling is sliding against the Euro and the US Dollar after the meeting minutes revealed that policymakers remain dovish.
The falling price of oil, a strong Pound Sterling, weakening export demand and low wage growth have all been highlighted by the MPC as threats to inflation.
Sluggish wage growth is of particular concern, with the Monetary Policy Statement stating that: ‘The balance between pay and productivity growth remains a key aspect of the MPC’s policy assessment.’