The British pound rose on Friday to its highest level against the dollar since the UK’s historic ‘Brexit’ vote in June of last year.
By lunchtime in London, the pound was buying $1.3616, capping a brilliant fortnight in which it has risen from rates close to $1.29. On minor profit taking, the currency settled back at $1.3583, for a weekly gain of 3.1%.
Britain’s currency was unfazed in the face of a terrorist attack in London on Friday morning, which left 29 people injured and prompted the government to raise its terror threat level to “critical.”
The pound benefitted this week after the Bank of England struck a hawkish tone at its meeting on Thursday, with bank governor Mark Carney saying that an increase in UK interest rates would be appropriate “in the coming months.”
Comments from Gertjan Vlieghe – one of the BoE’s most dovish committee members – solidified expectations for an imminent rate hike when he said during a speech in London on Friday that “the data is increasingly suggesting that we are approaching the moment when [the] bank rate may need to rise.”
GBP/USD was also assisted towards the end of the week by the dollar side, with the US currency slumping in spite of data on Thursday which showed US inflation rising to a seven-month high of 0.4% in August, from 0.1% in July. ‘Core inflation’, which strips out the volatile food and energy components of the Consumer Price Index, rose to 0.2%, from 0.1%.
The dollar wasn’t helped on Friday after investors learned that US retail sales fell in August by 0.2%, against expectations for an increase of 0.1%. Adding insult to injury, July’s increase of 0.6% was revised down to 0.3%.
Weakness in the dollar took the US Dollar Index (DXY) back below 92 (to 91.88) but the index remained marginally up on the week (+0.5%).
The Japanese yen was one of only two majors to post a loss against the dollar on Friday.
The yen, which normally benefits in the presence of geopolitical uncertainty, was left unwanted as investors shrugged off North Korea’s latest missile test and sought higher-yielding currencies. This pushed USD/JPY as high as ¥111.33 during Friday’s European session before some yen support was found and the rate fell to ¥110.83. The yen lost 2.5% on the week.
The euro rose marginally against the dollar, supported by Friday’s Eurostat data which showed eurozone wage growth at its highest level in two years. Second-quarter growth of 1.8% makes it more likely than ever that the European Central Bank will announce plans to scale back its asset purchase program at its next meeting.
EUR/USD climbed on the day to $1.1941 but ended the week 0.6% lower. The pair remains close to long-term highs.
The Swiss franc strengthened on Friday in the aftermath of Thursday’s meeting of the Swiss National Bank, at which the bank dropped its longstanding message of the franc being “significantly overvalued.” This, however, wasn’t enough to make back losses from the Monday-Wednesday period and the franc lost 1.6% on the week, taking USD/CHF to Fr. 0.9591.
The Canadian dollar took the week off.
The ‘loonie’ has surged in recent months on the back of two interest rate hikes by the Bank of Canada but USD/CAD spent most of the week drifting sideways on low volatility. The pair’s closing rate of C$1.2196 marked a negligible weekly loss for CAD of 0.3%.
Of the Antipodean currencies, the New Zealand dollar was best.
Against USD, the ‘kiwi’ climbed by 0.95% on Friday and by 0.4% on the week to $0.7288. The Australian dollar was unchanged on the day and fell 0.7% on the week to $0.7999.
Author: Joel Wright
Joel has been involved in the markets for the past 10 years. During that time he’s worked in market analysis teams in London, in the financial technology sector in Singapore – working mostly with automated trading tools and algorithms – and most recently he’s been planning FX risk hedging for an SME in Bangkok. Joel has a first-class honours degree in Financial Services and currently writes about foreign exchange for several global businesses.
You can get in touch with Joel via email here or via the contact page.