With trader focus dominated by the upcoming FOMC decision, market volatility sees pound movement against the euro (EUR) and the US dollar (USD) conversions today
The first session of the week saw the pound to euro (GBP/EUR) exchange rate edge lower after Eurozone Industrial Production data bettered estimates.
Meanwhile, the GBP/USD declined as traders readjust Dollar positions ahead of the Federal Open Market Committee (FOMC) interest rate decision on Wednesday.
The British Pound softened versus most of its currency exchange rivals on Monday after December’s monthly Rightmove House Prices contracted.
The Pound Sterling to Euro exchange rate ticked fractionally lower today despite US Dollar strength.
Whilst the euro held fractional gains against the Pound on Monday morning, the single currency is holding a weak position versus most of its forex rivals.
With the USD advancing ahead of the FOMC interest rate decision the single currency struggled to rack up gains despite positive domestic data.
Eurozone Industrial Production managed to better estimates in October on both a monthly and annual basis. However, traders have shown reluctance to respond to the positive results with European Central Bank (ECB) President Mario Draghi due to make a speech later this morning.
Over the Channel, the Pound declined versus most of its peers after Rightmove House Prices contracted by -1.1% on the month in December. This eased pressure on the Bank of England (BoE) into hiking the cash rate in order to avoid a housing bubble. However, many industry experts are not convinced that this contraction marks the beginning of a decline in house prices.
"Whilst a fall is the norm at this time of year, this is December's best post-financial-crash performance, signalling another round of price rises in 2016," said Miles Shipside, director of Rightmove.
USD/EUR Exchange Rate Gains as Investors Predict Hawkish Outcome from FOMC Rate Decision
Wednesday’s FOMC interest rate decision is likely to provoke significant market volatility whatever the outcome.
With an absence of influential domestic data today the US Dollar is likely to see movement in response to market volatility, although a general appreciation can be linked to trader confidence that the FOMC will argue to hike the cash rate on Wednesday.
In terms of the GBP/USD exchange rate analysts at BMO predict that there is room for the pairing to drop back into the 1.5075/90 support area.
“We (BMO) think there will be good GBPUSD selling interest in the 1.5450/1.5500 range for the time being. There is room for a move back to the 1.5075/90 support area if this week’s data reveal unexpected weakness in core CPI or a downside miss in wage data. However, with key aspects of the UK economy like services, credit and domestic demand still performing well, the pair should encounter solid demand on any move below 1.50.”
Market Trade Predicted to see Heightened Pound to Dollar (GBP/USD) Exchange Rate Volatility on Fed Policy Outlook
The coming week is likely to see significant volatility given traders have eagerly awaited the Federal Reserve interest rate decision this week.
Whatever the decision, the outcome will have a marked impact on the currency market.
Most analysts predict that the Fed will hike rates on Wednesday but emphasise the need for rate hikes to be a very gradual process.
"We believe the Fed's message of gradualism needs to be, well, more gradual," stated analsysts at Morgan Stanley.
GBP Exchange Rates Extend Losses after Draghi Speech Parrots Earlier Assertions
As has become the norm, the speech by European Central Bank (ECB) President Mario Draghi reiterated previous assertions regarding his willingness to do whatever it takes to bring inflation back to target.
The speech has minimal impact on the Euro which is holding gains thanks to positive Eurozone Industrial Production data results.
Draghi also, once again, called for Eurozone governments to reform their economies and their monetary union.
GBP/EUR Exchange Rate Trending Narrowly on Dovish Juncker, GBP/USD Dives after US Inflation Met Estimates
November’s British inflation data met with expectations on the year and bettered estimates on the month. However, inflation remains critically low and many traders predict consumer prices will return to negative territory with crude prices remaining close to an 11-year low.
The EUR also softened versus many of its peers today after European Commission President Jean-Claude Juncker warned that Euro-area governments cannot rely on accommodative policy for economic growth.
Meanwhile, the US Dollar rallied versus many of its peers after inflation data equalled median market forecasts. This has fuelled speculation that the Federal Reserve will look to tighten policy during tomorrow’s interest rate decision.
Current GBP, EUR Exchange Rates
On Sunday the Euro to British Pound exchange rate (EUR/GBP) converts at 0.858
The pound conversion rate (against euro) is quoted at 1.165 EUR/GBP.
FX markets see the pound vs us dollar exchange rate converting at 1.255.
Please note: the FX rates above, updated 5th May 2024, will have a commission applied by your typical high street bank. Currency brokers specialise in these type of foreign currency transactions and can save you up to 5% on international payments compared to the banks.