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GBP to USD Exchange Rate Continues to Gain on Solid Bank of England (BoE) Interest Rate Hike Bets

April 10, 2018 - Written by David Woodsmith

Amid solid UK housing data and hawkish comments from Bank of England (BoE) officials, the British Pound to US Dollar (GBP/USD) exchange rate has seen solid gains in recent sessions. US Dollar demand has been mixed due to trade uncertainties, despite attempts to calm persistent ‘trade war’ fears.

After gaining from 1.4013 to 1.4085 last week, GBP/USD has continued to climb and on Tuesday morning was trending near a two-week-high of 1.4158. If trade concerns persist, GBP/USD may have an easier time holding these highs above the key level of 1.41.

GBP Performance Sturdy as Bank of England (BoE) Interest Rate Hike Bets Firm


Last week’s mixed UK PMI data from Markit was enough to cause some uncertainty about whether or not the Bank of England (BoE) would hike UK interest rates as soon as its May policy decision next month.

However, strong UK housing data and hawkish comments from bank officials have made investors more confident that the BoE is still planning to hike UK interest rates again soon. This has kept the Pound appealing.

Monday’s UK house price index from Halifax beat expectations in both prints. The month-on-month figure jumped to 1.5%, rather than the forecast 0.2%. The previous figure was revised higher, from 0.4% to 0.5%.

The year-on-year house index rose from 1.8% to 2.7%, well above the expected 2.1%.

The news lightened concerns about Britain’s housing market and bolstered investor confidence that Britain’s economy would be able to support higher interest rates from the Bank of England.

Sterling saw another boost in demand on Tuesday, following an interview with BoE policymaker Ian McCafferty. McCafferty said that UK interest rates should rise again without delay, indicating to markets that the next rate hike was planned for May.
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McCafferty was one of the policymakers who voted for higher interest rates during March’s BoE meeting, and he has said that no UK data published since then has persuaded him that he was wrong to take that hawkish stance.

He indicated that while he could rule out changing his mind, he would likely vote to hike rates again in May. His confidence bolstered market confidence in a May interest rate hike and kept the Pound buoyed on Tuesday.

USD Supported as ‘Trade War’ Fears Dip Again


Last week’s US PMI and Non-Farm Payroll results disappointed investors, and the US Dollar remained weak on Monday too. Concerns persisted that fiery rhetoric between the US and China could lead to a ‘trade war’ between the nations.

However, during Tuesday’s Asian session, Chinese President Xi held a speech in which he attempted to further calm market concerns. According to Rebecca O’Keeffe at interactive investor;

‘While there was already an overwhelming sense that Chinese officials were keen to achieve a negotiated settlement before the proposed tariffs do any lasting damage to either the Chinese or US economies, today’s speech was the clearest indication yet that China is prepared to take concrete steps to address some of Trump’s chief criticisms.’


The news helped to limit Pound to US Dollar exchange rate gains, though GBP/USD continued to trend near its best levels in two weeks on Tuesday morning regardless.

GBP/USD Forecast: US Inflation and Trade Concerns Remain in Focus


If there are any signs that the US Presidential administration is becoming more eager to open fresh trade talks with China, the US Dollar could strengthen in the coming days and may push GBP/USD back from its recent highs.

Wednesday’s US data is also likely to be influential to US Dollar trade, as US inflation stats from March will be published.

If the US March Consumer Price Index (CPI) result beats expectations, markets will become hopeful that the Federal Reserve could ramp up the pace of its 2018 interest rate hikes.

Markets currently bet that the Federal Reserve will hike US interest rates three times throughout 2018, but hawkish investors are hoping for four rate hikes instead.

The Fed’s latest meeting minutes will also be published on Wednesday, which could further influence Fed bets.

As for Sterling, UK trade and production data could weaken BoE interest rate hike bets slightly if they are highly disappointing. Otherwise though, the British currency is likely to remain resilient and its potential losses against the US Dollar are likely to be limited.
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