After a fairly strong start to the week the Pound (GBP) slipped from its best levels yesterday morning following the Bank of England’s (BoE) latest financial stability report.
In its report the BoE warned that high levels of consumer credit posed a ‘pocket of risk’ to the UK economy and urged banks to set aside an additional £10bn to help protect against a potential downturn in the economy which would cause many consumers to default on their debts.
Meanwhile, investors will be looking towards a meeting between Theresa May and European Council President Donald Tusk later today, the first meeting between the pair since the Prime Minister’s speech last week.
The Pound Euro (GBP EUR) exchange rate started the session on strong footing on Monday as markets reacted to the disappointing result for Angela Merkel in the German election over the weekend.
Investors were dovish towards the single currency yesterday as, despite claiming victory, Merkel now faces the task of forming a new coalition government after her former SPD allies choose to leave the ‘grand coalition’ after suffering substantial losses against the far-right AfD.
Meanwhile the Euro was weakened even more this morning as data showed that French Business Confidence slipped in September.
After initially rising against the US Dollar (USD) during the Asian session yesterday following mounting tensions on the Korean Peninsula, Sterling was quickly brought back down to earth following the BoE’s credit warning.
Further strengthening the ‘Greenback’ yesterday was a speech by New York Federal Reserve President William Dudley in which he suggested that the Fed is still on track for further rate hikes and that factors weakening inflationary pressures are ‘fading’.
Meanwhile, a speech by Fed chair Janet Yellen could provide even more gains for the US Dollar later this evening should she also hint that another rate hike this year is possible.
Despite a surge in oil prices the Pound Canadian Dollar (GBP CAD) exchange rate is holding relatively steady this morning as markets shy away from riskier currencies as North Korea accuses the US of ‘declaring war’ in the latest escalation of rhetoric between the two countries.
Sterling continued to fluctuate against the Australian Dollar (AUD) this morning as concerns over the BoE’s credit report were offset by the rise of geopolitical tensions between the US and North Korea.
New Zealand Dollar
The Pound New Zealand Dollar (GBP NZD) exchange rate has also been bolstered by political uncertainty at the start of this week’s session after New Zealand’s own election ended in a hung parliament, with the two leading parties now scrambling to form a coalition government with the third party, New Zealand First.