Pound Sterling (GBP) Exchange Rate Forecast: GBP/EUR Softens, GBP/USD Advances
The Pound Sterling to Euro (GBP/EUR) exchange rate softened by around -0.28% on Friday afternoon.
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The Pound Sterling to US Dollar (GBP/USD) exchange rate rallied by around 0.97%.
After the Bank of England’s (BoE) Chief Economist Andrew Haldane made dovish comments with regards to the benchmark interest rate and threat of deflation, the Pound slumped versus the majority of its most traded currency rivals.
With Greece agreeing to draft a reform proposal that will please creditors, the shared currency strengthened versus most of its major peers. The latest development has eased trader fears of a Greek exit from the Eurozone.
Having surged significantly on Thursday after Federal Reserve Chair Janet Yellen dropped the word ‘patient’, the US Dollar dived on Friday after traders feared the appreciation was overdone and unjustified. This is especially true considering that the rate decision and following press conference were seen to be dovish, on the whole.
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.3801.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4883.
Pound Sterling (GBP) Exchange Rate Dips after Haldane Comments
As described above, dovish comments from the BoE’s chief economist have caused the Pound to soften versus most of its major rivals. Haldane suggested that a rate cut is equally likely as a rate hike in the current climate of low inflation.
‘Inflation has dropped like a stone over the past year, to close to zero,’ he said in a speech to businesses in central England, adding that the risk was that it would fall even more than the BoE forecast last month. ‘I think the chances of a rate rise or cut are broadly evenly balanced. In other words, my view would be that policy may need to move off either foot in the immediate period ahead, depending on which way risks break,’ he added.
Euro (EUR) Exchange Rate Strengthens as Greece Drafts Reform Proposal
Tensions regarding the potential for a Grexit eased on Friday after the Eurogroup urged Greece to prepare a reform proposal lest they lose financial aid completely. ‘There was confirmation of the will of all sides to work so as to restore the financing ability of the Greek economy as soon as possible,’ Greek Prime Minister Tsipras said.
‘Now we have to take that at face value and say we trust that this will happen,’ stated German Chancellor Angela Merkel, who heads the biggest country contributor to Greece’s 240 billion-euro ($256 billion) bailout. ‘And then we’ll see what comes.’
US Dollar (USD) Exchange Rate Dives on Unjust Gains
Thursday’s US Dollar surge saw the asset solidify its position as the second most overvalued currency on the market. The gains were seen as unjustified by some considering the Fed’s policy outlook was far more dovish than traders had expected.
‘It’s natural for the Dollar to pause. The Dollar was overbought. It had one of the most vertical moves in 40-years,’ said Boris Schlossberg, partner with BK Asset Management. ‘I don’t think the Dollar rally is over by any stretch of the imagination. I think the market is going to be more data dependent…Now the Fed has taken away the promise of rate hikes, the market may be more two-sided for the time being.’
Pound Sterling (GBP) Exchange Rate Forecast to Trend Lower
Given the lack of domestic data to curb the trend, the Pound is likely to trend lower versus the majority of it most traded peers over the remainder of Friday’s European session.
Next week should see Sterling volatility, with several influential data publications due. Of particular significance will be the Consumer Price Index, which will give a better indication as to whether Haldane was premature in his predictions.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending within the parameters of 1.3764 to 1.3839.
The Pound Sterling to US Dollar (GBP/USD) exchange rate was trending within the range of 1.4714 to 1.4910.