The Pound reached a monthly high versus the Euro yesterday (GBP to Euro) and was just 2 pips short of striking a fresh 4-year high against the US Dollar.
There were no key British economic releases, only news of a major corporate buyout involving the flow of cash from Swiss drug maker Novartis to British pharmaceutical company Glaxo Smithkline.
The corporate asset sale had a positive impact on demand for the Pound, but it is likely that Sterling’s sturdy performance was influenced to a stronger extent by speculation that this morning’s Bank of England Minutes report will reveal a hawkish bias from some policymakers.
The Pound to Euro exchange rate (GBP/EUR) is currently trading close to a monthly high of 1.2200, and is only around half a cent shy of a fresh yearly high of 1.2258.
Data released later this morning in the Eurozone is expected to show that private sector activity decelerated mildly from 53.1 to 53.0 at the beginning of April. Although this would only represent a small drop in the Purchasing Managers Index, it could be seen as a sign that the currency bloc is losing momentum. Therefore it is possible that we could see GBP/EUR rally towards 1.2258 during today’s session if the BoE Minutes shows a greater willingness from Central Bank officials to raise rates ahead of schedule.
The Pound to US Dollar exchange rate (GBP/USD) is currently sitting close to a fresh 4-year high of 1.6843 and it is entirely possible that the Pound could reach this level if markets react positively to the Bank of England Minutes report.
GBP to USD rallied by around 0.4 cents yesterday even though US data printed positively – the Richmond Fed Manufacturing Index jumped from -7 to +7 and the House Price Index rose from 0.4% to 0.6% – which could be a sign that traders are feeling cautious about selling cable at this moment in time.
However, US Manufacturing is forecast to print at 56.0 for April, up from 55.5 in March, later this afternoon. The robust factory output figure could soften Sterling’s gains because, despite Federal Reserve Chairwoman Janet Yellen’s recent dovish testimony, traders are aware that the US Central Bank intends to hike interest rates at some point in the next 12-18 months. All decent US numbers therefore have the potential to bolster demand for the ‘Greenback’.
With both the BoE and the Fed keen to start tightening monetary policy in the medium term it seems likely that Pound to US Dollar could struggle to continue growing at the rate at which it has over the past year (a 15-cent gain). However, because the European Central Bank looks increasingly likely to loosen monetary policy it is possible that Pound to Euro could post a sizeable rally over the next few months.
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