Exchange Rate News Today: GBP Sluggish on Profit Locking, EUR Soft & USD Pressured
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Pound Sterling (GBP)
Sterling surged higher across the board on Friday following the result from the Scottish referendum which saw the Unionists victorious. The collective sigh of relief was evident with the instant uptrend in the immediate aftermath of the result. A united Britain is much preferable in terms of easing pressures such as Scotland’s inheritance of UK national debt and their use of the Pound. However, Sterling has since softened considerably which can be attributed to trader profit-taking and new concerns over Scottish devolution.
Improved sentiment towards Sterling following the Scottish referendum saw demand for the Pound rocket. This large upswing creative some attractive selling positions which were quickly seized upon by savvy investors. This weakened the Pound exchange rate, as did fresh uncertainties in regards to future constitutional changes promised by Prime Minister David Cameron in the panic leading up to the referendum.
The Pound to Euro exchange rate rallied to a two-year high on Friday morning in reaction to the referendum result. ‘Fiber’ (GBP/EUR) cooled, however, during the London session as investors sought to lock in their profits.
In an attempt to stimulate economic growth, the European Central Bank has introduced an array of expansionary policy measures; but the single currency remains susceptible to further losses due to the region’s weak inflationary climate. These expansive measures have caused bond yields to soften in the Eurozone which has weighed on demand for the Euro. There is also potential for further depreciation if the ECB elect to embark on a full-scale bond-buying programme.
US Dollar (USD)
Having initially enjoyed a 1.5 cent rally the Pound to US Dollar exchange rate pared the gains on Friday as analysts speculated on Federal Reserve plans to tighten monetary policy. Most believe that the Bank of England will be the first major central bank to hike rates, but now speculation is rife that the Fed won’t be too far behind. The Fed’s new, hawkish policy outlook makes the prospect of a long-term investment much more attractive. Demand for the US Dollar is increasing exponentially in anticipation of higher yield returns in 2015.
Canadian Dollar (CAD)
Friday’s Canadian data showed that price pressures remained strong and the Pound to Canadian Dollar exchange rate softened by around a cent in response. The monthly Consumer Price Index jumped by around 0.5% in August which ensured that the annual CPI equalled the previous figure of 2.1%. The robust inflation data saw increased demand for the Canadian Dollar amid speculation of a sooner-than-anticipated benchmark rate hike from the Bank of Canada.
Australian Dollar (AUD)
The Pound to Australian Dollar exchange rate rallied to a half-year high on Friday after positive market reaction to the result from the Scottish referendum. Although the exchange rate softened sharply during the London session the Pound still posted a daily gain of one cent against the Australian Dollar. This can be attributed to weaker risk sentiment following the Fed’s hawkish rate outlook, and rapidly declining raw materials prices which caused investors to pull away from the commodity-sensitive ’Aussie’ (AUD) Dollar.
New Zealand Dollar (NZD)
Akin to its South Pacific cousin, the New Zealand Dollar weakened significantly against the Pound following the results from the Scottish vote, but the subsequent spate of profit buying took the ‘Kiwi’ (NZD) Dollar higher. Demand for the Antipodean currency has remained strong on Monday morning in reaction to news that the incumbent National Party won by a clear majority in the weekend’s general election. This victory has boosted the New Zealand Dollar’s appeal because it means there won’t be any dramatic changes in economic policy.
South African Rand (ZAR)
The Pound surged against the South African Rand in the immediate aftermath of the Unionist victory in the Scottish independence referendum, and softened slightly after traders locked in their profits. With nothing in terms of economic data the South African Rand lost a little ground after the Fed’s hawkish monetary policy outlook curtailed trader risk-sentiment.
On Tuesday the Australian Dollar recovered losses against several of its peers as China’s Manufacturing PMI printed above expected levels. The commodity-driven New Zealand Dollar also benefited from this data.
The US Dollar, meanwhile, came under a little pressure after a Federal Reserve official intimated that persistent strength in the local currency could undermine growth in the US.
The Euro is likely to experience fluctuations in the hours ahead as a result of manufacturing/services and composite PMI for the Eurozone and its largest economies.