BOC sees strong rebound but low rates for another year

Sterling dropped ¾ of a cent against the USD yesterday and half a cent against the euro. Maybe the comments from the Bank of England’s Andy Haldane weighed on the Pound. He feels that inflation risks are the greatest since Black Wednesday. That’s the one when GBP was forced out of the exchange rate mechanism (ERM), rather than Black Tuesday during the 1929 stock market crash or black Friday when Americans go shopping, or Black Sabbath when live bats are beheaded to honour Ozzy Osbourne. Maybe I made that last one up.

Either way, traders seem to have been interested but not shocked by his comments. After the turmoil of the last 15 months or so, I think we’d all agree that some inflation is inevitable. This correction in the Pound wasn’t isolated to those pairs. GBPNZD is down half a cent at 1.9630 and GBPCAD is down a similar amount at 1.7080.

Part of that Canadian Dollar advance is attributable to the Bank of Canada’s policy statement, which confirmed their belief that Canada will experience a strong rebound this summer and that interest rates will remain at these extraordinarily low levels for more than a year.

The GBPAUD exchange rate is also down to a two-week low at 1.8225 after a rise in Australian inflation expectations, which kind of counterbalanced yesterday’s poor consumer sentiment index.

ECB decision – and changes of stance – awaited today

The major movers and shakers today are the European Central Bank who will almost certainly leave their base rate on hold but could tinker with their other monetary policy levers. So the Euro is in the spotlight at 12:45 GMT and then again at 13:30 GMT for their press conference.

US jobless claims to drive USD

The US consumer inflation data at 13:30 GMT will also be influential. A rise to 3.4% or thereabouts, is forecast and that data will be accompanied by the weekly jobless claims data. Another drop in fresh claims is expected but these numbers have been volatile of late, so there is scope for US Dollar volatility.

The New Zealand Dollar is likely to be active overnight when retail spending data and the business purchasing managers index are both published. And the Pound will face early challenges tomorrow morning when industrial and manufacturing production data is released along with international trade figures. A bit of breakfast volatility for UK traders is always worth getting up for.

Have a great Thursday everyone.

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