The Pound Sterling to Euro (GBP/EUR) and Canadian Dollar (GBP/CAD) exchange rates gained on Wednesday while the Pound Sterling to US Dollar (GBP/USD) and Indian Rupee (GBP/INR) exchange rates fell.
The US Dollar could be in for significant movement later in the session as the Federal Open Market Committee announces its latest interest rate decision.
Economist Richard Hoey commented: ‘The core issue is wrapped around inflation expectations. They have a lot of time to wait for data before they have to do anything too overt.’
Earlier… The Pound Sterling exchange rate fell against the Euro (GBP/EUR), Canadian Dollar (GBP/CAD), US Dollar (GBP/USD) and Indian Rupee (GBP/INR) during Tuesday’s trading, after UK Gross Domestic Product (GDP) stats fell below forecasts.
Year-on-year growth in the final quarter of 2014 reached only 2.7%, up from the previous quarter’s annual expansion of 2.6%. Economists had forecast 2.8%. The report adds to the pile of weaker-than-forecast UK economic data which has seen investors price in rate hikes in 2016 rather than 2015.
However, the US Dollar broadly softened when Durable Goods Orders contracted by -3.4% in December, despite economists forecasting growth.
US Consumer Confidence rocketed from 93.1 to 102.9 in January–the strongest level since August 2007, completely bypassing the 95.5 prediction.
Industry expert Lynn Franco commented: ‘A more positive assessment of current business and labour market conditions contributed to the improvement in consumers’ view of the present situation. Consumers also expressed a considerably higher degree of optimism regarding the short-term outlook for the economy and labour market, as well as their earnings.’
BoE Unanimous Policy Decision Pressures Pound Sterling (GBP) Lower
Last week’s Bank of England (BoE) minutes showed all nine members of the Monetary Policy Committee (MPC) had voted in favour of keeping interest rates on hold—the first unanimous vote in five months.
Analyst James Knightly suggests the GDP figures show ‘the long-heralded rebalancing story in the UK has completely stalled.’
Knightly continued: ‘With inflation set to drop marginally below 0% year-on-year in the next couple of months, it is little surprise to see that the market has priced out Bank of England policy tightening for this year.’
‘However, the comments from BoE’s Mark Carney and Kristin Forbes over the weekend suggest that the upcoming Inflation Report may be less dovish than many market participants are anticipating. Consequently, we would be cautious about chasing Sterling weaker.’
Meanwhile, the Euro has been busy reclaiming losses incurred following the recent Greek election, which saw anti-austerity party Syriza win just two seats short of a majority. European Finance Ministers are now in talks to help Greece get growth back on track.
Dutch Finance Minister Jeroen Dijsselbloem commented: ‘We stand ready to support them in that ambition.’
Euro (EUR) Exchange Rate Recovers from Syriza Election Win
However, as the political situation in the Eurozone continues to unfold, the Euro to Pound Sterling (EUR/GBP) exchange rate could be sensitive to any mention of a Greek exit. Furthermore, some countries have stated that they’re not willing to discuss a write-off of any Greek debt.
The Canadian Dollar to Pound Sterling (CAD/GBP) exchange rate has had an interesting time of late with the price of oil continuing to fall and dragging the ‘Loonie’ lower. The Canadian commodity currency has had little opportunity to gain amid falling prices and Bank of Canada (BOC) rate cuts.
In addition, Canadian citizens have grown to their most pessimistic in three years as oil declines affect the rate of growth and the housing market.
Nanos Research, who measure optimism for Bloomberg each week, stated: ‘The share of Canadians who predict a stronger economy fell to 18.3%. The spread between pessimists and optimists—at 17.8 percentage points—held near the lowest since the 2008-2009 recession.’
Friday will be a big day for the ‘Loonie’ with the release of Canada’s Gross Domestic Product ecostats. Growth is forecast to fall from 2.3% to 2.1% and could pressure the Canadian Dollar to Pound Sterling (CAD/GBP) exchange rate lower.
More RBI Rate Cuts Forecast? Rupee (INR) Gains
The Indian Rupee has been relatively buoyant since Reserve Bank of India (RBI) rate cuts inspired optimism. Furthermore, more rate cuts are forecast.
Chief economic advisor Arvind Subramanian commented: ‘The way I view is that RBI has a mandate to bring down inflation and keep it low and given the inflation has been coming down, that opened up the space for monetary policy easing and RBI has begun that.’
‘The RBI’s own statement says that this is not just a change in rate, but a shift in its monetary policy stance provided inflation remains low and there could be more easing.’
US Dollar (USD) Exchange Rate Awaiting Confidence and Durable Goods Orders
The US Dollar is in for a big day on Tuesday with the release of US Durable Goods Orders and Consumer Confidence figures. Durable Goods Orders are expected to grow by 0.3% in December after November’s downwardly revised -0.9% contraction.
Meanwhile, Consumer Confidence is forecast to jump from 92.6 to 95.0 and could offer the US Dollar the opportunity to gain.
In addition, Markit’s US Services and Composite Purchasing Managers Indexes are also scheduled for publication.
Pound Sterling to US Dollar (GBP/USD), Euro (GBP/EUR), Canadian Dollar (GBP/CAD) and Indian Rupee (GBP/INR) Exchange Rate Forecasts
The Pound is likely to continue fluctuating on the back of the UK GDP figures during Tuesday’s session as some use the data as evidence that the UK recovery has stalled.
Thursday will see the release of CBI Reported Sales figures and Friday the publication of the GfK Consumer Confidence index.
The Pound is also likely to be sensitive to UK politics in the run up to May’s general election.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending in the region of 1.5086. The Pound Sterling to Indian Rupee (GBP/INR) currency pair resides at 92.7110. The Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate has fallen to 1.8804. The Pound Sterling to Euro (GBP/EUR) exchange rate is trading around the 1.3339 marker.
