British Pound (GBP), US Dollar (USD) Exchange Rates Forecast to Drop; ‘Loonie’ Remains Strong
It has been a disappointing week for the US Dollar, currently trading at 0.5844 against the Pound, and 1.0711 against the Canadian Dollar.
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This week has seen disappointment for both the UK and the US by way of interest rate rises.
Both countries faced their central bank’s decisions, and both countries gleaned no hope as to when the rate hikes would take place.
Many have speculated that the UK rate hikes would materialise at the end of 2014 or the beginning of 2015, however, with economists pushing for rate hikes this side of Christmas, this week’s UK data releases have signalled a slowing down in the Pound’s rally.
Economist Howard Archer has stated there is ‘considerable doubt’ as to which side of Christmas UK rate rises would occur.
Archer suggested: ‘Even if the Bank of England does start edging interest rates up before the end of 2014, we still expect them to only reach 1.25% by the end of 2015.’
The Pound has softened this week against other major currency peers after the UK trade balance deficit crept higher than anticipated, and industrial output fell; moreover this week highlighted that the UK house price gaining is becoming lethargic.
Currency expert Lee Hardman stated: ‘We saw more evidence today that activity in the UK housing market appears to be easing off and also the trade report showed recent deterioration in the trade deficit has continued. Both of these factors are weighing modestly on the Pound.’
The Pound is expected to fall next week, unable to remain bullish with such poor data revelations.
However, Sterling may have some hope at remaining strong if the heavy data releases occurring on Tuesday and Wednesday pertaining to unemployment and job opportunities, next week prove favourable.
Conversely the US Dollar is also set to soften, estimated to drop against the Yen for the biggest fall since April in the coming week.
The US Dollar lost investment interest this week when the Federal Reserve didn’t entertain interest rate hike speculations, despite last week creating a surge of employment opportunities.
Lee Hardman commented: ‘There’s a modest bias on the Dollar—the Fed hasn’t even acknowledged the significant improvement in the labour market, they’re looking increasingly behind the curve in terms of their policy stance.’
Canada however has seen strength in the ‘Loonie’, whose commodity prices—predominantly copper—have kept it buoyant in the currency market.
However the Bank of Canada and Canadian exporters fear the ‘Loonie’ is growing too strong, which will ultimately price Canadian exporters out of any competitive market.
Moreover, Canada seems to meet resistance against the US Dollar at the 94 US cents mark.
A foreign exchange expert, David Tulk, commented: ‘Canada added a lot of jobs early in the recovery and is struggling to get the next leg higher. The message for the Bank of Canada is clear: they have enough evidence to look through some of the increase in inflation and remain quite cautious because the growth outlook is not as strong as they would have hoped.’
Wednesday however will reveal the Bank of Canada’s interest rate decision which could prove interesting for the ‘Loonie’.
Friday will also be significant as the Canadian Consumer Price Index and the Bank of Canada Consumer Price Index is revealed.
Whilst the Pound and the US Dollar look likely to soften, the ‘Loonie’ appears to be holding its ground for now.
The British Pound is currently trading against the US Dollar at 1.7109 and against the Canadian Dollar at 1.8321. Meanwhile the ‘Loonie’ is trading against the US Dollar at 0.9338 and the Pound at 0.5459.