Pound Sterling: GBP Declines on Unchanged UK Inflation Rates
The Pound has fallen against the Euro, US Dollar and other currency peers today, following the news that UK inflation rates have remained unchanged in May.
Economists had been predicting a faster pace of price growth because of higher fuel prices, but actual results have shown no real movement.
This means that while UK households don’t face the threat of a wage squeeze, there is also no real impetus for the Bank of England (BoE) to raise interest rates at the present time.
Pound Sterling might be able to recover in value on Thursday morning, should UK retail sales figures show as-forecast growth for May’s year-on-year readings.
Euro: Positive EUR Movement Caused by Pre-ECB Meeting Optimism
Ahead of a key meeting of European Central Bank (ECB) policymakers, the Euro has appreciated against the Pound but traded tightly against the US Dollar.
The Euro has been trading well in most pairings, so this narrow EUR/USD exchange rate is mainly because of similar US Dollar strength.
The latest Eurozone news hasn’t been too supportive – levels of industrial production have slowed in April for the month-on-month and year-on-year readings.
Euro support has primarily come from the hope that Thursday afternoon’s ECB meeting could bring news of monetary policy tightening.
There is the chance of greater Euro gains if ECB officials decide to wind down quantitative easing (QE), as this will open the door to eventual interest rate hikes.
US Dollar: USD Traders Unsettled by Looming Fed Interest Rate Decision
Much like the Euro, the US Dollar has been influenced today by speculation about an imminent central bank meeting.
This has led to an advance against the Pound, but narrow trading against the Euro and a loss against the New Zealand Dollar.
In this instance, the dominant factor is the more immediate Federal Reserve interest rate decision coming this evening.
Fed policymakers are predicted to hike interest rates from 1.75% to 2%, which could boost the US Dollar and lead to gains against all of the USD’s regular peers.
Australian Dollar: Rising Consumer Confidence Triggers AUD Exchange Rate Gains
The Australian Dollar has firmed against the Euro, Pound and US Dollar today, although these gains might be lost after the Fed interest rate decision.
Support has come from the latest Westpac consumer confidence index, which has shown 0.3% growth in June.
While not much on paper, this has contributed to the best level of growth since 2014 when taking the first six months of 2018 into account.
As mentioned above, if the US Dollar rises after a Fed interest rate hike, the Australian Dollar could fall in value because of reduced risk sentiment.
New Zealand Dollar: NZD Advances as US Dollar Struggles
Although the New Zealand Dollar is at risk of falling like the Australian Dollar after a Fed interest rate hike, the NZD has nonetheless risen across the board today.
This appreciation is potentially down to US Dollar instability, which has led to a temporary rise in risk sentiment.
Beyond potential losses from the Fed interest rate decision, the NZD could also be weakened by Thursday evening’s Business NZ PMI for May.
Measuring manufacturing activity during the month, this is predicted to show potentially NZD-damaging weakness in the manufacturing sector.
Canadian Dollar: CAD Weakened by Trade Fears and Looming Fed Decision
As a commodity currency, the Canadian Dollar remains at risk of being devalued by a Federal Reserve interest rate hike this evening.
This factor has contributed to CAD losses today, although the Canadian currency has still traded higher against the weaker Pound.
Domestic uncertainties have also dragged on the Canadian Dollar, with worries about an escalating US-Canada trade war lowering confidence among CAD traders.
The only real chance for a Canadian Dollar recovery in the near-term is a surprise interest rate freeze from the Fed, which might lead to a CAD recovery in the face of a falling US Dollar.
This week the US Dollar was touching three-year highs when valued against a basket of major currencies. The greenback’s traditional role as one of the safe-haven currencies is helped by a domestic economy that is largely immune to the threats of the coronavirus.
Last update: 22 Feb, 2020
The strong start to the year for “risk-on” currencies is already a distant memory.
Posted: 3 Feb, 2020
The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
Last update: 8 Jan, 2020