May BoE Rate Hike Hopes Propel Pound (GBP) Exchange Rates
Hawkish Bank of England (BoE) Policymaker Ian McCafferty has pushed once again for a rate hike from the central bank, insisting that accelerating UK wage growth and the current strength of the global economy emphasised the need for higher interest rates.
McCafferty also noted that the UK’s labour market continues to tighten (having reached the lowest unemployment rate since 1975) and that wage growth could prove stronger than many members of the Monetary Policy Committee (MPC) believe.
‘We shouldn’t dally when it comes to tightening policy modestly’, he stated.
Beyond this, McCafferty stressed the strength of the UK’s export sector, asserting that the weakness of the Pound is keeping British exporters ‘in a sweet spot’, and that, thus far, concerns that Brexit might result in a loss of business have proven unfounded.
This push once more for a rate hike in May gave Sterling a notable boost.
GBP/EUR Exchange Rate Climbs – ECB Nowotny Sees Summer Decision to Slash Bond Purchases
The Pound Euro (GBP/EUR) exchange rate extended its climb on Tuesday morning, unperturbed by some hawkish comments from European Central Bank (ECB) Policymaker Ewald Nowotny.
Nowotny asserted that the ECB must not fall ‘behind the curve’, and that the decision to slash bond purchases could begin at the end of September when the purchase programme expires.
Whilst this is good news for Euro bulls, the BoE and the US Federal Reserve are both regarded as the more hawkish institutions currently, especially with the ECB not likely to raise interest rates for the foreseeable future.
Chinese President Xi Capitulates on Auto Trade – US Dollar (USD) Exchange Rates Boosted
The markets were taken by surprise this morning when Chinese President Xi Jinping promised to cut car import tariffs and push for a more open economy.
At a business conference speech on Tuesday Xi expressed a willingness to ease restrictions on foreign ownership in China’s car industry whilst also pledging to open up markets and improve conditions for foreign companies.
Furthermore, the Chinese leader promised to expand the protection of intellectual property – a major issue on the list of US demands, whilst also pushing to usher in a ‘new phase of opening up’.
This is a massive step forward in US/China negotiations and could push the US to hold off on severe tariff measures – news that should please markets.
Nonetheless, the GBP/USD exchange rate continued to rise on Tuesday, unperturbed by the current strength returning to the ‘Greenback’.
Crude Oil Prices Surge – CAD Exchange Rates Unable to Capitalise
Crude oil prices rocketed over 1.3% on Tuesday as tensions between the US and China seemed to dissipate.
This proved insufficient in bolstering the Canadian Dollar vs Pound, however, with markets favouring Sterling on concerns that trade negotiations could still see volatility, and lingering anxiety over US production growth.
Australian Dollar Bolstered by Xi Jinping Speech – GBP/AUD Trades Sideways
The Pound Australian Dollar (GBP/AUD) exchange rate traded sideways on Tuesday morning with the ‘Aussie’ Dollar largely supported by Chinese leader Xi Jinping’s promise to better open China to foreign trade.
This decision bodes well for the commodity-based nation, with markets also pleased that the risk of a global trade war seemed to be easing.
On the data front, Australian business confidence dropped in March from a score of 9 to 7, below the forecast of 8.
Whilst this was disappointing, it did not prevent the ‘Aussie’ Dollar from capitalising on the good trade news.
GBP/NZD Exchange Rate Slides as Market Risk Appetite Returns
The Pound New Zealand Dollar exchange rate fell on Tuesday, with demand for the ‘Kiwi’ rising thanks to the possibility of North Korean denuclearisation and China’s talk of open trade.
Chinese leader Xi Jinping’s comments were the predominant driver, with risk appetite for commodity currencies like the New Zealand Dollar seeing a substantial rise on the possibility of China lowering tariffs on imports and generally being more receptive to foreign businesses.
Beyond this, the recent rise in whole milk powder – New Zealand’s primary export could also be providing some support to the New Zealand 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