Sterling rises ahead of BoE rate decision

Headlines

  • Sterling rises ahead of BoE rate decision
  • ECB taper talk to support euro
  • Dollar edges higher as risk sentiment improves
  • New Zealand election risks weigh on currency

GBPUSD 1.3196 GBPEUR 1.1026 EURUSD 1.1968 USDCAD 1.2094 GBPINR 84.41 GBPAUD 1.6417 GBPAED 4.847

Pound

  • The pound rose to more than a three-week high against the euro this morning as investors speculated that the Bank of England (BoE) may sound more hawkish on interest rates this week. The BoE's rate-setting monetary policy committee (MPC) will meet on Thursday to discuss whether to increase interest rates, and analysts expect the MPC to keep its current rate of 0.25 per cent unchanged. However, investors have begun speculating on the possibility of a more hawkish policy from the BoE.

Euro

  • For the past few months markets have been lapping up comments from the ECB president Mario Draghi on the timing of an ECB easing taper, and this past Thursday's rate decision perhaps solidified future ECB. As largely expected, the central bank kept rates unchanged. However, it hugely hinted at the start of a balance sheet draw-down, this autumn “deciding on the calibration of their policy instruments beyond the end of the year” and adding that “a bulk of the decisions” will be taken at their meeting in October, rather than December. Following the announcement, the euro accelerated to multi-year highs against the US dollar. The euro has been the best performing major over the course of 2017, up more than 12 per cent on the year and the gains are set to continue through the weeks ahead.

Dollar

  • The dollar held on to most of its gains yesterday, following a sharp rebound on improving investor risk sentiment as worries over North Korea and Hurricane Irma receded. It had slumped when Hurricane Irma threatened Florida and as financial markets braced for the possibility of another missile or nuclear test to mark North Korea's founding day on Sept. 9. The yen tends to benefit during times of economic and political uncertainty due to Japan's net creditor nation status. But Pyongyang's anniversary passed without further tests, and Irma lost strength and was downgraded to a tropical storm after battering Florida over the weekend, key factors behind the dollar's bounce.

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