Pound Sterling Exchange Rate Forecast: GBP Lower on BoE Commentary

September 8, 2016 - Written by Ben Hughes

STORY LINK Pound Sterling Exchange Rate Forecast: GBP Lower on BoE Commentary

Mixed Pound Sterling (GBP) Exchange Rates Following GBP/EUR, GBP/USD Best Levels

Yesterday’s afternoon session in the global currency markets brought decidedly mixed messages for Pound Sterling (GBP) exchange rates with real data releases painting a markedly different picture of the domestic economy to the one described by policymakers.

The National Institute of Economic and Social Research (NIESR) published its latest monthly UK Gross Domestic Product Estimate – a release which is always eagerly awaited by FX market insiders by dint of the fact that that the leading think tank compiles it using the government’s own modelling software. The headline NIESR statistic revealed that domestic economic activity increased by 0.3% during the three months to the end of last month. This result suggests that the UK economy has singularly failed to grind to a halt in the weeks either side of June’s UK European Union Referendum vote in the way that many analysts had predicted.

BoE Expected to Cut Rates Again, Pound Could Fall Vs Euro, US Dollar

However, almost as the NIESR data was published, leading rate-setters from the Bank of England (BoE) issued a very different message and triggered a decline in Pound Sterling to Euro (GBP/EUR) and Pound Sterling to US Dollar (GBP/USD) exchange rates. The Bank’s Deputy Governor Jon Cunliffe predicted in a report issued yesterday that,

‘If the economy evolves as set out in the August forecast, I would expect to vote for another cut in Bank Rate this year as highlighted in the Minutes of the MPC's August meeting.’

Cunliffe went on to assert that,

‘If demand slows more significantly than expected, and the output gap is correspondingly larger, I would be willing to vote for further monetary stimulus.’

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Below 1.34, GBP/USD Hits 1.18

Other BoE comments also kept the Pound (GBP) trending in a weaker position against both the Euro (EUR) and US Dollar (USD).

The Bank’s Governor Mark Carney and policy committee member Kristin Forbes struck a more downbeat tone when addressing the UK Parliament’s Treasury Select Committee. Carney told the assembled parliamentarians that the slightly firmer tone of UK data releases in the last week had been largely anticipated and went on to suggest that, ‘growth is running at about half the rate of before the referendum.’

However, when asked a direct question, Governor Carney emphatically responded that the probability weighted average of a technical recession had decreased since the Brexit vote; he went on to claim the credit for this, stating that the reason for this was his Bank’s swift response in loosening domestic monetary policy.

Rate-setter Kirsten Forbes added to the Pound’s woes by confirming that the Bank’s current set of monetary policy tools was ‘not limitless’ and suggesting that there could be further policy loosening to come.

The Pound Sterling US Dollar exchange rate slipped back below the 1.3400 GBP USD threshold following Carney’s words, while the GBP EUR exchange rate tracked lower into the 1.1800s having threatened to break back above the psychologically key 1.2000 level earlier in the day.

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TAGS: Dollar Pound Forecasts Euro Pound Forecasts Pound Sterling Forecasts