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By xemarketanalysis September 14, 2017 12:06 pm
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    XE Market Analysis: British Pound Surges as Bank of England Warns of Rate Hike

    OVERVIEW

    • Pound jumps as BoE hold rates, but turns more hawkish as housing survey improves.
    • The US Dollar fails to hold gains after stronger inflation data. 
    • The Swiss Franc is weaker despite central bank saying currency less overvalued.
    • The Australian Dollar dips despite very strong jobs data.
    • Japanese Yen strengthens after North Korea threatens to sink Japan and annihilate the US.
    • ECB board member says they need more time before deciding to cut stimulus.
    • Turkish central bank keeps rates on hold. 

    HIGHLIGHT

    The British Pound has strengthened over one percent versus the Dollar, hitting a fresh 1-year high after the Bank of England said it may increase interest rates over the coming months. The MPC voted 7-2 to keep rates on hold, with Michael Saunders and Ian McCafferty maintaining their vote to hike rates. The Pound initially fell on the disappointment that the chief economist, Andy Haldane, who said in June that he expected to support a rate rise later in 2017 but hadn’t voted for one. However, it quickly recovered and GBP/USD rallied to a 1-year high of 1.3370 as the market digested the minutes, which said that "some withdrawal of monetary stimulus was likely to be appropriate over the coming months”.

    US DOLLAR

    The US Dollar is trading mixed against its major counterparts, but the Dollar index is slightly lower with uncertainty over Trump tax reform plans seeming to be the main reason for a soft Dollar. Inflation rose at a faster than expected pace in August, with CPI increasing 1.9% year-on-year, getting closer to the Fed's target that could allow further monetary policy tightening from the Federal Reserve this year.

    BRITISH POUND

    The Pound is higher across the board on speculation that the Bank of England will raise rates in the coming months (see highlight). 

    EURO

    The Euro is steady around 1.19 versus the Dollar having fallen after yesterday's comments from Trump and members of Congress on getting a tax reform plan in place in the next couple of weeks. The Euro recovered from its lows of the session after ECB rate-setter, Bostjan Jazbec, played down the threat to inflation from the rise in the Euro, arguing that the strong Euro was evidence of the Eurozone's economic vigor.

    CANADIAN DOLLAR

    The Canadian Dollar weakened to a one-week low versus its US counterpart as commodity linked currencies suffer from concerns that North Korea will launch more missiles. Canadian new home prices rose 0.4% in July from June, slightly exceeding economists' forecasts for a gain of 0.3%. 

    AUSTRALIAN DOLLAR

    The Aussie Dollar is marginally weaker as commodity currencies come under pressure from weaker market risk sentiment due to fears of further North Korean missile launches. The Aussie had initially strengthened after data showed employment leaped by 54,200 in August, far above forecasts of a 15,000 gain and the biggest rise since October 2015. But China weighed on the Aussie due to the economic ties between Australia and China who are the country's biggest trading partner.  

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