Global Themes

  • Spotlight shines on BOE today
  • US Dollar floats close to 11-month highs
  • A day of central banks

GBP

Spotlight shines on BOE today 

The British Pound finds itself under further selling pressure this morning ahead of the Bank of England’s (BOE) monetary policy meeting today, which has the potential to surprise market participants. It’s been a rocky road for Sterling this year when it comes to the central bank’s guidance on tightening monetary policy. Back in April, GBP/USD careered to fresh post-Brexit highs just shy of $1.44 on speculations that the BOE would raise rates in May. However, with policymakers voting 7-2 in favour of keeping rates unchanged, the pound was punished. GBP/USD has plunged over 8.5% since then and hovers precariously around new year lows atop $1.31. Today, no economists polled by Reuters expect the BOE to raise rates from 0.5% when it announces its policy decision at 12:00pm. A statement along with the minutes of the meeting will also be revealed at this time and could give fresh directional impetus for the pound.

Should the BOE hint at an August rate rise, the pound could shoot higher and reclaim the €1.14 level against the Euro and clamber out the grave the dollar has dug it, to avoid a slide into worrying territory below $1.30. According to Reuters, the current market pricing of a UK rate rise in August sits at 40%, compare this to the US, which has seen two hikes this year and expects another two before year-end. Confirmation of this divergence in monetary policy could further skew risk to the downside for GBP/USD.

  • Yesterday, Sterling was propped up by the victory in parliament for Prime Minister Theresa May’s government on an important vote on Brexit. The opposition backed down following some compromises made by the government, which in short should allow parliament some say over a ‘no deal’ scenario but the government maintain overall control.

USD

US Dollar floats close to 11-month highs 

The US Dollar continued to climb higher against a basket of currencies yesterday, spurred on by comments from Federal Reserve Chairman Jerome Powell, who indicated that the central bank will continue with tightening policy at a gradual rate (source: Reuters). Easing tensions between the US and China has helped support the dollar with bond yields rising. The dollar has notably gained against the pound, Euro, Swiss Franc and Canadian dollar.

  •  EUR/USD is less than 40 pips away from this year’s low of $1.1506. Immediate short-term support for the Euro could rest at $1.1450, but a fall through there could re-open the $1.11-$1.12 region. Upside momentum in the short term looks limited to $1.1850. Over the past seven trading days, USD/CAD has risen near 3% to breach a 1-year high back above C$1.33.

EURO

A day of central banks 

Today, as reported above we have the BOE rate decision, before this we have two other central banks making decisions on interest rates. First up is the Swiss National Bank (SNB) at 8:30am, it is expected the bank will leave interest rates unchanged at -0.75%, which they have held since March 2015. The SNB will look to keep the currency weak to counteract the CHF gaining more strength due to ‘safe haven’ buying over the global trade war tensions. Sterling has lost near 6% against the Swiss Franc since mid-April, opening today at SFr1.3120.

  • Following the SNB, the Norges Bank (NB) will have its interest rate decision meeting at 9:00am, and it is expected that the NB will hold interest rates at 0.5%. In March, the central bank indicated that they expect to start raising interest rates in September. Beyond that, the central bank expects six more rate increases by end of 2021, with the policy rate reaching 2.25% at that point. A continued ‘hawkish’ message from the bank could see the NOK gain further against Sterling, since the start of June the NOK has gained 1.52% and the pair opened trading today at Kr10.7740.


*The rates displayed by our free currency converter are neither "buy" nor "sell" rates, but interbank rates, the wholesale exchange rates between banks. Interbank rates don’t include the spreads, handling fees, and other charges that may be assessed by foreign exchange providers. Please note that, as such, these rates are provided for indicative purposes only. Prior to booking a transaction, Western Union Business Solutions will advise you of the actual rate then available for a particular currency transaction.

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