Another swathe of bad news from the UK economy has kept Pound Sterling (GBP) weak over the past seven days. A volatile global stock market has seen the Euro (EUR) fluctuate wildly, while the US Dollar (USD) has been weakened by confusion over the likely path US interest rates will take.
The Bank of England (BoE) once again caused drama with another so-called ‘Super Thursday’, meaning that the latest quarterly Inflation Report coincided with the next decision on UK interest rates. The overall result of the meeting, which was that interest rates were held level at 0.5% again, was entirely predicted. The decision still caused concern among investors however following the revelation that even the previously optimistic Ian McCafferty had voted with the rest of the board to hold rates.
The accompanying inflation report was unsurprisingly dovish and caused speculation among traders regarding when the BoE might actually get around to hiking interest rates. The market consensus is for the first hike to come sometime in 2017, although this means little considering a few weeks ago the consensus was for a January hike.
GBP/USD, GBP/EUR Exchange Rates After Bank of England ‘Super Thursday’
With a mixed US jobs report failing to answer the question of what the US Federal Reserve will do regarding interest rates at their March meeting, the US Dollar has remained weak since Friday. All eyes are currently on Chair Janet Yellen, who gives the second of her public appearances this week. She has already giving a vague suggestion that the Federal Reserve will continue to gradually increase interest rates during the course of 2016, which has strengthened the US Dollar, but investors are still hoping for stronger hints.|
The Pound Sterling to US Dollar (GBP/USD) exchange rate has been trading between 1.4369 and 1.4650.
If traders thought that the Chinese markets and banks being closed for the Lunar New Year festival would calm the turbulent stock markets, they were wrong. Fresh figures and renewed fears saw huge slumps in share value. This caused the Euro to shoot up in value as traders sold what they perceived to be risky stocks and instead bought the safer common currency, or Euro-denominated assets. When the markets calmed and stocks gained, the Euro fell again as investors returned to other assets.
The Pound Sterling to Euro (GBP/EUR) exchange rate has traded between 1.2682 and 1.3167, while the US Dollar to Euro (USD/EUR) exchange rate has trended between 0.8805 and 0.9031.
So, what’s likely to happen in the week ahead?
Tomorrow is a key day for both Eurozone and US data. Preliminary estimates for German and Italian Gross Domestic Product in the final quarter of 2015 are followed by the final Eurozone Gross Domestic Product Figures. The US will release Advance Retail Sales figures for January and the highly influential University of Michigan Confidence index. The UK’s Consumer Price Index figures for January are due out on Tuesday, along with the Eurozone ZEW Economic Sentiment survey.