An early morning slump in the Pound (GBP) was reversed this morning as markets began to speculate on the possibility of the Bank of England raising interest rates earlier than expected.
The dissent of policymaker Kristin Forbes in last week’s policy meeting and expectations that inflation will continue surging this month has prompted economists to forecast that the BoE may hike rates later this year.
The Pound Euro (EUR) exchange rate stabilised close to its opening levels this morning after Sterling recovered from a brief dip during Asian trading.
German data showed that domestic Producer Prices rose to a five-year high in February, jumping from 2.4% to 3.1%, however the single currency was largely unmoved by the print in the face of the strengthening Pound.
EUR investors are likely to focus on Eurozone Wage data later this morning, with the Euro possibly rising if wage growth remains positive.
Sterling advanced against the US Dollar (USD) this morning, reaching a new three-week high as the ‘Greenback’ ceded ground following a disappointing Federal Reserve meeting last Wednesday.
Investors had hoped that the early start to monetary tightening would prompt the Fed to revise the number of rate hikes likely to take place this year, however in the post-meeting statement Fed Chair Janet Yellen stuck to the bank’s predictions that there will be two more rate hikes this year.
The US Dollar may strengthen later this afternoon if Chicago Fed President Charles Evans strikes a more hawkish tone as he kicks off a week of Fed speeches.
The Pound Canadian Dollar (CAD) exchange rate rallied from an initial slump this morning as economists speculated that rising inflation will force the BoE to raise interest rates in the foreseeable future.
The oil-correlated ‘Loonie’ may also struggle to advance this week as crude prices continue to be weakened by reports of increased US drilling activity and concerns members of OPEC are not complying with production cuts.
Sterling found its recovery against the Australian Dollar (AUD) muted somewhat this morning as rising Chinese house prices strengthened the ‘Aussie’ on speculation that increased activity in the construction sector will raise demand for commodities.
New Zealand Dollar
After tumbling by around a cent this morning the Pound New Zealand Dollar (NZD) exchange rate was able to recoup roughly half of its losses as Sterling sentiment was improved by BoE rate hike forecasts.