GBP stabilises despite BOE efforts
The Bank of England has a lengthy and honourable history of damaging the value of the pound whenever they speak and yesterday’s performance in front of the Treasury Committee at Westminster kept with that tradition. There was a mismatch between the more hawkish tone of the Governor and the softer tone of MPC member Silvana Tenreyro and that sort of public misalignment within the central bank is often damaging for the pound. However, the performance of the new Prime Minister seems to have calmed nerves a little and sterling had a better day. The pound starts Thursday above USD 1.15 and above AUD 1.70 but it is down a little against the euro. More of that story below. We will hear much more from Prime Minister Truss today, so we may see more GBP strength. GBP buyers beware.
Just how hawkish will the ECB be?
It is safe to say (I think) that the European Central Bank will raise their base rate today. What is less certain, is the size of that increase. Many commentators and analysts have factored in a 75 basis point hike which will bring the eurozone base rate up to 1.25% and will end the negative interest being charged by the ECB on bank deposits. In fact, whether the rate hike is 3/4 or 1/2 of 1%, there will be an incentive for investors to move money back into the eurozone and that, in turn, should strengthen the euro after the ECB announcement. The caveat to this is whether or not the markets have fully factored in that 75 basis points. A more cautious approach by the ECB could well weaken the euro, but it is very safe to say that the euro will be volatile around 12:15 GMT. Right now, there is some level of factoring in on the value of the euro because GBPEUR is down to €1.1515 and the EURUSD rate is just below parity at $0.9985.
CAD strengthens after rate hike
Central banks are stealing all the limelight at the moment. Yesterday it was the Bank of Canada that took centre stage, hiking their base rate by 75 basis points to 3.25% in line with market expectations. BOC governor Tiff Macklem said there was every chance rates would continue to climb and Canada’s base rate is already one of the highest of the industrialised nations. That drags in investor funds. The GBPCAD rate, which had spiked to CAD 1.5230 on Monday, slipped to this morning’s CAD 1.5080.