GBP driven higher as markets rush to buy weakened pound

The pound was on strong form yesterday, despite concerning signs from the latest car sales data.

Sterling is on uncertain form so far this morning. GBP/EUR is stuck opening levels at €1.1349, while GBP/USD has weakened -0.2% to US$1.3152. GBP/AUD is flat around A$1.7150, while GBP/NZD is stuck at NZ$1.8989. GBP/CAD is creeping below opening levels and is currently in the region of C$1.6749.

Will demand continue to drive the pound higher today, or will this morning’s disappointing data undermine GBP? Read on to see what could be in store for Sterling…

What’s been happening?

The pound was able to climb steadily throughout the day yesterday, with markets sensing that perhaps the sell-off following last week’s Bank of England (BoE) news had been overdone.

Sterling weakened to such a point that it became an attractive opportunity again, which saw markets piling back into the pound despite worrying signs from the UK automotive industry.

New car registrations fell -12.2% in October, up from the -9.3% drop seen in September. This marks the sixth consecutive month in which new car sales have fallen, with sales of vehicles to businesses down more than a quarter.

GBP/EUR exchange rates were given a helping hand from the fact the markets did not seem inclined to buy into the euro yesterday.

This was despite the latest producer price data showing a sharp increase in input costs, which suggests that inflationary pressures for consumers will start to build soon as well.

However, with the European Central Bank (ECB) still rather cautious on monetary policy while US Federal Reserve looks set to hike interest rates next month, the policy divergences between the two economies of the world’s most-traded currency pairing look set to widen further.

GBP/USD was able to make further advances thanks to market uncertainty after New York Federal Reserve President William Dudley announced he will retire early in 2018.

With the outlook upon monetary policy already slightly complicated because Jerome Powell will take over as chair of the Fed in February, the loss of a key voice on committee therefore raises questions.

What's coming up?

There is little on the UK economic calendar today, which could leave markets reacting poorly to the latest data from the British Retail Consortium (BRC).

Retail sales like-for-like posted a surprise contraction of -1% on the year in October, adding further gloom to the outlook for the UK’s dominant services sector.

The euro could be in for more volatility, as markets react to this morning’s speeches from ECB officials including President Mario Draghi, as well as retail data covering October.

There is nothing of note on the US economic calendar, but those super high odds of a rate hike next month will likely keep the US dollar on solid form.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.