Chris Doane
September 10, 2021

Sterling exchange rates climb as BoE signals future interest rate hike

The Pound climbed against all major currency pairs yesterday, after a bullish update from the Bank of England earlier this week along with some other positive UK based news.

Financial markets are expecting the BoE to hike the base rate of interest some time in 2022, and this week these hopes were underpinned by comments from Andrew Bailey, the Governor of the BOE. At the Monetary Policy Report hearing this week Governor Bailey highlighted that there is currently a 4-4 split as to whether to hike rates or not. Usually there are 9 members so with one member missing this week there is a deadlock, and the changes in some members voting patterns was considered bullish by the markets.

Cable (GBP/USD) climbed by over half a percent and GBP/EUR climbed above 1.17 for the first time since the 19th of August providing Sterling sellers with an opportunity to convert Pounds into Euros at the best rate in around 2 ½ weeks.

There were other positive updates out of the UK yesterday which may have also helped improve sentiment surrounding the UK, and therefore boosted the Pound. UK house prices climbed last month against expectation, despite a partial cut in the stamp duty threshold which had been a key driver in housing activity within the UK.

London based offices within the City and Canary Wharf are now the busiest they’ve been since the beginning of the pandemic which is a sign of a return to normality. This is despite concerns about the Delta variant causing another surge in cases and rumours of another potential lockdown later this year. The government has ruled out this possibility for now but it’s worth keeping an eye on especially now that the schools have returned after the summer break.

There was some negative news released yesterday, which fortunately for Sterling sellers didn’t push the Pound lower. Britain is no longer one of Germany’s top 10 trade partners as German imports from the UK have plunged in the first 6-months of the year. This is being blamed on the increased admin and custom checks relating to Brexit, and it’s the first time this has taken place since 1950.

Economic data out of the UK is light during market hours today, although the NIESR’s GDP Estimate could be worth looking out for. Please get in touch if you wish to be updated regarding this update relating to the UK’s economic output.

ECB Opts to Slow its Stimulus Package and, Keep its Rates on Hold

Yesterday afternoon European Central bank (ECB) president Christine Lagarde announced that the central bank will slow the pace of its pandemic bond-buying program in the final quarter of this year.

She played down the move and insisted that it’s not a tapering of financial stimulus, and this brought about a market reaction as the Euro weakened as a result of these comments. The weakening of the Euro helped the GBP/EUR rate hit a 2 ½ week high, indicating that the market’s reaction to Lagarde’s comments are bearish.

The ECB President described the move ‘a recalibration of the pandemic emergency purchase program for the next three months’ and announced that the Governing Council decided it will conduct purchases at a ‘moderately lower pace’ than the 80 billion Euros of monthly purchases over the past two months. Interest rates will also remain on hold for now, as inflation levels within the region are expected to remain below the 2% target for years to come.

Usually when a central bank declares that they will cut back on asset purchases, it’s considered to be a bullish move. It’s often regarded as ‘tapering’ which is perhaps why Christine Lagarde emphasised that this isn’t a taper, and just a reassessment of the existing stimulus package.

Euro bulls were perhaps hoping for a more bullish change, and also a more bullish tone from the ECB president and this is why the Euro tailed off in the afternoon.

Those of our readers following the Euros price can look out for another speech from the ECB President today when Largarde will be speaking at 10.30am. After yesterday’s key decisions the markets may look out for hints of future monetary policy changes so it’s worth keeping an eye out for further market reactions concerning this. Aside from this speech data is light out of the Eurozone for the remainder of the week.

All Eyes On Jackson Hole, As Market Awaits Signal On Fed Policy 1

USD Mixed Despite Positive Jobs Data

It’s been a rocky few weeks for the Biden administration after the withdrawal from Afghanistan has been met with mixed reactions, with Biden’s approval rating slipping as a result of the way it was handled. Some of the previously supportive media sources have been critical of his handling of the withdrawal, after the Taliban took control of the entirety of the country within a few days of US forces departing the region.

The impact on the US Dollars value has been negligible, with the US Dollar index remaining quite flat over the past few weeks.

Some much needed good news regarding the US economy was released yesterday as it was reported that US weekly jobless claims are near an 18-month low. Jobless claims are often regarded as a good indicator of the economy’s health, and the data released yesterday suggests that the labour market is holding up despite a spike in covid cases due to the Delta variant. There was a key eye on yesterday’s release after new jobs created in August were at their lowest levels since January according to the most recent non-farm payroll figures. The slowing of job growth was blamed on the rising infection numbers so yesterday’s release is considered a positive for the US economy.

Another topic of discussion within the financial media is whether President Biden will opt to renominate FED Chairman Jerome Powell when his current term runs out in February 2022. He’s considered the stable option and he was initially nominated by President Trump in 2017. The White House press secretary declined to comment when asked this question earlier this week so I think we may hear more on the subject as the current administration hasn’t been forthcoming in commenting on the topic.

Data due out of the US is also light today, although the Producer Price Index will be announced at 1.30pm this afternoon which relates to inflation levels year on year.

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