The Pound Sterling to US Dollar (GBP/USD), Pound Sterling to Canadian Dollar (GBP/CAD) and Pound Sterling to Japanese Yen (GBP/JPY) exchange rates all jumped in the first half of Friday’s European trading as Bank of England (BoE) Governor Mark Carney spoke on interest rates in Frankfurt, and investors awaited Federal Reserve Chairwoman Janet Yellen’s speech on monetary policy.
In addition to Carney speaking, BoE chief economist Andrew Haldane and Deputy Governor Ben Broadbent have also been speaking at various events which could have helped impact Pound Sterling trading.
Broadbent discussed the prospect of deflation; amid a backdrop of tumbling global inflation and low oil prices, the central bank recently stated that interest rate hikes may have to wait until economic conditions improve.
While Haldane suggested that an interest rate cut could occur if lower inflation persists, Broadbent suggested that the chance of a deflationary spiral is low.
Broadbent stated: ‘Real interest rates still need to be low. Our inflation target is 2% not zero: what makes the current position “good” is not low inflation per se but the fact that, in this particular instance, it’s been caused by something (a drop in oil prices) that improves real incomes.’
‘My own view, however, is that the likelihood of a broad and protracted deflation, afflicting wages as well as prices, is pretty low.’
BoE’s Carney Suggests Interest Rates Will Go Up, Pound Sterling (GBP) Exchange Rate Spikes
BoE Governor Mark Carney took a hawkish edge in Frankfurt, suggesting that interest rates could rise soon.
Carney stated: ‘The next move in interest rates is likely up.’
The statement from the BoE Governor was enough to see the GBP/USD, GBP/CAD and GBP/JPY exchange rates jump.
Meanwhile, the US Dollar is expected to experience major fluctuations in Friday’s American session against the Pound Sterling (USD/GBP), Canadian Dollar (USD/CAD) and Japanese Yen (USD/JPY) as investors eagerly anticipate the outcome of Federal Reserve Chairwoman Janet Yellen’s speech on monetary policy.
Any hawkish remarks from the central banker could send the USD/CAD, USD/GBP and USD/JPY currency pairs through the roof as investors hedge their bets for interest rate hikes.
Interest rate strategist George Goncalves commented: ‘Markets have still been digesting last week’s Fed announcement and realise they’re not in a rush to hike and if they’re going to do it, they’re going to be gradual about it because they don’t want to risk the recovery with premature hiking.’
Meanwhile, the Canadian Dollar has been experiencing movement on account of oil prices. Geopolitical tensions between Yemen and Saudi Arabia caused the price of oil to jump on Thursday, pulling the ‘Loonie’ exchange rate up with it.
As airstrikes in the region took place, fears that oil production would be hindered increased and therefore crude prices gained. However, fears eased on Friday and the price of black gold softened once again.
Analyst Michael Poulsen commented: ‘Unrest in Yemen continues, but fears of an oil supply disruption in the area have eased somewhat. The oil price increase has faded.’
The Japanese Yen also climbed amid speculation that the situation between Yemen and Saudi Arabia would escalate. The safe-haven Yen can benefit from an increase in investor sentiment during times of strife or uncertainty.
However, one factor placing downward pressure on the Japanese Yen exchange rate is Japan’s National Consumer Price Index figures, which emerged in the Asian session.
The inflation index dropped from 2.4% to 2.2% in February on the year while economists had forecast a softer drop to 2.3%.
The prospect of softer monetary policy in Japan is in complete opposition to the Federal Reserve’s tightening outlook and therefore the Japanese Yen to US Dollar (JPY/USD) exchange rate broke its two-day climb.
Currency strategist Yunosuke Ikeda commented: ‘It’s clear that Japan will maintain its accommodative monetary policy and tapering is not in sight while it’s also clear that the US is just about the only place where interest rates will rise.’
Pound Sterling Exchange Rate Forecast: GBP/USD, GBP/CAD, GBP/JPY
The Pound Sterling exchange rate could be in for major movement on Monday with the release of UK Mortgage Approvals, Net Consumer Credit and Net Lending Secured on Dwellings figures.
US Personal Consumption Expenditure will also be out in Monday’s American session which could impact the US Dollar exchange rate quite significantly.
However, as for Friday, investors are eagerly awaiting Federal Reserve Chairwoman Janet Yellen’s speech, as well as University of Michigan Confidence, US Gross Domestic Product and Personal Consumption ecostats.
The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is reaching 177.5200. The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading at 1.4878; the Pound Sterling to Canadian Dollar (GBP/CAD) exchange rate is trending in the region of 1.8614.