The British Pound to Euro (GBP/EUR) exchange rate was trending lower on Thursday after the single currency fell significantly earlier in the week, the British Pound to Canadian Dollar (GBP/CAD) exchange rate also fell while the British Pound to US Dollar (GBP/USD) exchange rate advanced after Federal Reserve stress test results.
Four major Wall Street banks struggled to past the tests six years after the global financial crisis began.
Earlier… The British Pound to Euro (GBP/EUR) exchange rate continued trending higher in the second half of Wednesday’s European session while the British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates took a tumble.
GBP/EUR remained bullish as tensions between Greece and Germany heightened while talks between Greece and its creditors continued. With negotiations rocky, the threat of a Grexit cannot be ruled out.
The British Pound to Euro (GBP/EUR) exchange rate gained in the first half of Wednesday’s European session as European Central Bank (ECB) President Mario Draghi spoke in Frankfurt, while the British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates were trending in a narrow range.
ECB President Draghi defended the central bank’s decision to undertake a period of quantitative easing (QE) which began on Monday.
Draghi stated: ‘Asset purchases are unconventional but they are not unorthodox. In fact they are eminently orthodox. ‘
Earlier… The British Pound to Euro (GBP/EUR) exchange rate was trending higher in Tuesday’s European session while the British Pound to US Dollar (GBP/USD) and British Pound to Canadian Dollar (GBP/CAD) exchange rates fell as a result of investors forecasts for Federal Reserve and Bank of England (BoE) rate hikes.
The US Dollar surged in Monday’s American session and continued to climb on Tuesday after Dallas Fed President Richard Fisher suggested that he would prefer to hike US interest rates in the near future, allowing for a gradual rate of progression rather than sharp and fast increases further down the road.
Fed’s Fisher See’s US Dollar to Euro (USD/EUR) Exchange Rate Reach 12-Year High
Long-term policymaker of the Federal Open Market Committee (FOMC), Fisher also warned that if rates remained low for longer, the risk of recession within the US economy would heighten. The statements saw the US Dollar to Euro (USD/EUR) exchange rate hit a 12-year high.
Foreign exchange strategist Jim Paulsen commented: ‘The Dollar’s going up so much so fast you wonder what it does to US economic growth down the road, to profitability. Fisher made comments—that gives more support around the idea that the Fed window has indeed moved up, which is bringing a more aggressive bid to the Dollar and more angst for equity investors.’
Meanwhile, monetary policy divergence between the US and UK in comparison to the Eurozone has never been more apparent. As the US and the UK are edging ever closer to interest rate hikes, the Eurozone begins a period of quantitative easing (QE).
As the only major central bank to not embark on a sovereign bond buying scheme since the onset of the global financial crisis, many economists had suggested QE was the only option left for the ECB after many attempts to stimulate the economy fell flat.
The European Central Bank unleashed its new monetary policy programme on Monday and has begun relatively small in comparison to the overall target. However, hopes are high that the ECB’s QE plan will eventually revive the struggling currency bloc.
Berenberg Bank economist Holger Schmieding stated: ‘Record lows in financing costs, the gradual turn in the credit cycle, the largely successful conclusion of the stress-test exercise and the ongoing repair of bank balance sheets indicate that the more aggressive ECB policy will gradually reach the real economy over time.’
While the Federal Reserve and Bank of England may be gearing up for rate hikes, the Bank of Canada (BOC) recently cut rates by 25 basis points to 0.75%.
Recent oil tumbles have seen the BOC’s growth concerns increase and the surprise rate cut was hypothesised to be the first of many. However, the central bank kept the bank rate stable at the subsequent meeting.
However, some economists are now criticising BOC Governor Stephen Poloz for giving mixed messages—a very similar criticism of BoE Governor Mark Carney emerged last year when it came to interest rates.
Economist Benjamin Tal stated: ‘In Canada, the central bank continues to play with the mental health of the market.’
Furthermore, the surprise rate cut at the start of the year is still resonating within the market and throwing uncertainty into the mix.
Economist Sherry Cooper commented: ‘No one expected the rate cut, so caught with their proverbial pants down, the pundits dumped on Poloz for having misled them.’
British Pound Exchange Rate Forecast: GBP/EUR, GBP/USD, GBP/CAD
The British Pound advanced in the early part of this week as investors priced in a BoE rate hike in the near future. Although it’s unlikely the BoE would adjust borrowing costs in the next few months, experts now suggest that the time for rate hikes could be ripe after the May general election.
The UK election is likely to see a political shakeup and therefore sentiment and UK growth could suffer as a result. However, when the fallout stabilises, the BoE could be in prime position to hike interest rates.
Tuesday saw Bank of England (BoE) Governor Mark Carney speak on the topic of monetary policy and inflation. Carney suggested that inflation would fall to 0.0% in coming months but wouldn’t be the same as the Eurozone’s deflation spiral. Carney then moved on to discuss the prospect of using monetary policy to counteract falling oil prices and inflation.
Carney said: ‘The thing that would be extremely foolish would be to try to lean against this oil price fall today. [That’s] because the impact of the extra stimulus… would happen well after the oil price fall had moved through the economy and we would just add unnecessary volatility.’
Wednesday will see the release of UK Industrial Production and Manufacturing Production figures, as well as the NIESR Gross Domestic Product Estimate. Thursday will continue the influential data stream with US Advance Retail Sales.
Friday could be extremely interesting for the Canadian Dollar to British Pound (CAD/GBP) exchange rate with the release of Canadian Net Change in Employment and Unemployment Rate figures.
The British Pound to US Dollar (GBP/USD) exchange rate is reaching 1.5090. The British Pound to Canadian Dollar exchange rate is trading at 1.9058. The British Pound to Euro (GBP/EUR) exchange rate is trending in the region of 1.4078.