Mixed Data Failed to Shore up Pound Amidst BoE Rumours
Although UK mortgage approvals were found to have risen to their highest level since the EU referendum this failed to particularly boost Pound Sterling (GBP) on Monday morning.
Investors were more concerned by conflicting reports over the future of Bank of England (BoE) Governor Mark Carney, who it was speculated could be ready to leave the central bank in 2018 before other sources suggested he would see out a full eight-year term.
Hopes that Carney could stay on encouraged the Pound to trend higher against some of its rivals, although a lack of any official confirmation either way nevertheless kept the mood towards Sterling rather muted at the start of the week.
A weakening in net consumer credit for September also maintained downside pressure on the Pound Sterling US Dollar (GBP/USD) exchange rate, suggesting that confidence within the domestic economy remains somewhat limited.
US Dollar Trends Higher Ahead of Federal Reserve Policy Meeting
Demand for the US Dollar (USD), on the other hand, picked back up as the impact of Friday’s mixed raft of domestic data faded.
While personal consumption was found to have weakened further than forecast in the third quarter, offering a more bearish view of the world’s largest economy, this was not seen to significantly dent the odds of the Federal Reserve raising interest rates before the end of the year.
Confidence in the US Dollar could waver ahead of Wednesday’s Fed policy meeting, though, with investors likely to take a more cautious view in anticipation of fresh policymaker commentary.
Even so, economists at Nomura noted:
‘To keep markets on notice for a possible rate hike in December, we expect the statement to indicate that the committee is considering action “at its next meeting” … although this is a close call. The statement will likely again say that risks to the economic outlook are “roughly balanced”. A statement along these lines should keep the committee on track to raise the funds rate at the December meeting.’
GBP/USD Exchange Rate Volatility Forecast on Softer UK PMIs
The appeal of the Pound could weaken further in the coming week if the latest raft of UK PMIs prove discouraging, with any signs of economic softness set to provoke further market anxiety.
Expectations are for growth to have slowed across all three sectors, something which could provoke disquiet amongst investors and dampen the outlook of the UK economy.
On the other hand, if economic activity is found to have continued to hold up in the face of mounting Brexit-based uncertainty then the GBP/USD exchange rate could find a fresh rallying point.
Either way, market jitters are likely to mount ahead of the BoE policy meeting on Thursday, which could shed further light on the future of Governor Carney.
Current Interbank Exchange Rates
At the time of writing, the Pound US Dollar (GBP USD) exchange rate was trending lower around 1.21, while the US Dollar Pound (USD GBP) pairing was making gains in the region of 0.82.
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