Exchange Rate News Today: GBP Sluggish, EUR Dives on ECB Rate Revision and USD Strong
Pound Sterling (GBP)
Despite having registered a 10-month high services sector readout on Tuesday; the Pound didn’t manage to capitalise as concerns over economic transition weighed heavily on Sterling.
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In 2011 Chancellor George Osborne called for a ‘march of the makers’ in the hope of rebalancing the British economy from domestic consumption to export-led growth. There have been some hopeful signs from the UK manufacturing sector but the Eurozone debt crisis has hampered significant development. The long period of contraction/tepid growth in the UK’s largest trading partner notwithstanding, British exports have further issues to deal with as the crisis between Russian and Ukraine escalates.
Having fallen to a 14-month low of 52.5 on Monday, factory output has been hurt by geopolitical concerns. Wednesday saw the British services sector reach a 10-month high of 60.5 but investors remained concerned that the British economic growth is too reliant on domestic consumption, which is seen to be unsustainable. The anxiety surrounds the problem of low wage compared with inflation which could dampen domestic demand and destabilise economic recovery.
Thursday’s Bank of England interest rate decision has remained unchanged at 0.50%. This is in line with the majority of trader predictions and wont effect any serious movement until an accompanying statement is published. The BoE Asset Purchase Target also remained fixed at 375 billion in line with the forecast.
Wednesday’s upbeat services score was not enough to improve sentiment towards Sterling as anxieties over the Scottish referendum weighed heavily on the British currency.
The European Central Bank has elected to drop the interest rate which surprised many economists and has seen the Euro soften across the board. ECB has slashed all of its main interest rates by 10 basis points and have announced an initiative to purchase private assets in order to prevent a decline into deflation.
The decision by the Bank of England to hold rates and the European Central bank to cut their rates has seen the Pound to Euro exchange rate strengthen considerably.
US Dollar (USD)
The Federal Reserve may be persuaded to tighten monetary policy as a robust 10.5% uptick in factory orders is one of string of impressive Northern American economic data publications. The result saw the Pound to US Dollar exchange rate sink to a fresh 6-month low on Wednesday.
With Scottish independence anxieties weighing heavily on sentiment towards Sterling and with the fear that the British economy is too dependent on domestic growth; the positive UK services score was not enough to rally the Pound to US Dollar exchange rate.
Canadian Dollar (CAD)
Sterling plummeted to its lowest level since January versus the Canadian Dollar on Wednesday as investors reacted positively to the Bank of Canada’s decision to maintain the current interest rate at 1.00%. The ‘Loonie’ (CAD) saw a positive surge across the board in response to the accompanying statement from Bank of Canada Governor Stephen Poloz, who indicated that export growth was increasing and housing market activity was impressive. The hawkish tone of the statement has led some investors to believe that the Bank of Canada will hike rates sooner than originally anticipated.
Australian Dollar (AUD)
An impressive Australian Gross Domestic Product reading saw the Pound to Australian Dollar exchange rate drop to a yearly low; sliding by around 1.5 cents. Having been forecast to grow by 0.4% the actual GDP data showed a growth of 0.5% in the second quarter.
New Zealand Dollar (NZD)
In spite of the better-than-expected UK Services PMI the Pound to New Zealand Dollar weakened marginally on Wednesday. This was a result of the combination of the Scottish referendum, the conflict in Ukraine and fears of the British economies’ reliance on domestic growth.
The New Zealand Dollar has continued to struggle against the majority of its major peers after a sharp fall in global dairy prices weighed heavily on sentiment towards the ‘Kiwi’ (NZD).
South African Rand (ZAR)
The Pound Sterling to South African Rand exchange rate was bolstered on Wednesday by a combination of waning sentiment towards Sterling and a better-than-forecast South African Manufacturing PMI. The KASIGO Manufacturing PMI was forecast to rise to 46.63 from the previous score of 45.9, but the actual data showed a jump to 49.0.