British Pound (GBP) Exchange Rate Gains Forecast if BoE Minutes Show Split Vote
The British Pound looks poised to rally against its currency rivals if today’s Bank of England minutes report shows that some policy-makers voted for a rate hike in July.
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The meeting, which took place at the beginning of the month, saw policy-makers vote to leave interest rates at the current record low of 0.50% for the 64th consecutive month.
However, recent comments from BoE Governor Mark Carney have suggested that the nine-person Monetary Policy Committee (MPC) could be on the verge of raising rates due to fears regarding the overheating domestic housing market.
Analysts predict that the bank will either start tightening monetary policy in November this year or during the first quarter of next year.
If it emerges that some policy-makers at the bank are already gunning for a rate hike then it will likely give 2014 rate hike bets a massive boost. This is liable to send Sterling higher against its most-traded currency peers.
During yesterday’s session the Pound gained a little bit of ground against the US Dollar when the core measure of US inflation, which does not include volatile variables such as food and energy prices, came in disappointingly at 1.9%.
The market reaction to the softer-than-anticipated core CPI figure was clear: Sterling gained against the US Dollar, but lost out against the high-risk Australian and New Zealand Dollars. This is because investors saw the result as a sign that there is very little pressure on the Federal Reserve to start raising interest rates at this juncture.
Perhaps more interesting was that the way the market moved later on in the afternoon. By the early evening Sterling had clawed back its losses against the high-yielders. This suggests that traders felt uncomfortable sending GBP/AUD and GBP/NZD lower ahead of today’s central bank minutes report.
Taking into account the market positioning of Sterling during yesterday’s session it looks likely that the Pound could rally strongly if the BoE minutes impress.
With seemingly little pressure on the Fed to start raising rates a hawkish minutes report has the potential to send the Pound to US Dollar exchange rate (GBP/USD) back up towards a fresh 5.5-year high of 1.7192.
And the Pound’s late surges against both the ‘Aussie’ and the ‘Kiwi’ suggest that there is also potential for strong moves in GBP/AUD and GBP/NZD.
Pound to Euro Exchange Rate Could Hit 23-Month High
The British Pound to Euro (GBP/EUR) exchange rate is liable to strike a fresh 23-month high if investors are satisfied that the BoE’s intentions are suitably hawkish.
However, this situation does leave Sterling susceptible to losses if the minutes report adopts a more dovish-than-expected tone.