Pound hits 3-week high vs. US dollar, GBP/EUR dips to €1.12

While the pound largely held its own against the majors yesterday it did tumble against the euro in the wake of a speech by European Central Bank (ECB) President Mario Draghi.

GBP/EUR struck a low of €1.1263, down from €1.1384, GBP/USD dipped from its peak of $1.2804, GBP/AUD managed to cling to a level of AU$1.6871, GBP/NZD advanced from NZ$1.7363 to NZ$1.7648 and GBP/CAD closed the day trading at C$1.6833.

What next for the pound? Keep scrolling to find out...

What’s been happening?

After causing the pound to stumble last week, Bank of England (BoE) Governor Mark Carney gave Sterling a little leg up on Tuesday.

Carney stated that British banks would need to hold an extra £11 billion of capital reserves to defend against a sudden negative shift in economic conditions. The move was interpreted differently by various sources, with some viewing a tightening in credit conditions as demonstrating confidence in the British economy.

However, the pound dropped below €1.13 against the euro as European Central Bank (ECB) President Mario Draghi helped the common currency surge.

Draghi praised the impact of the ECBs monetary stimulus scheme, crediting it as contributing to building reflationary pressures.

A slight shift in tone led to the assumption that the ECB is getting closer to unwinding its extensive quantitative easing programme, and this was enough to send GBP/EUR reeling.

Meanwhile, the US dollar came under pressure as the International Monetary Fund (IMF) cut its US growth forecasts for 2017 and 2018. The move helped GBP/USD advance to a three-week high.

What's coming up?

Other than a few high-impact news items from North America, the economic calendar is looking a bit sparse today.

Political news is therefore likely to be the main cause of GBP exchange rate movement, with Prime Minister Theresa May set to face Labour leader Jeremy Corbyn in the first Prime Minister’s Questions since the ill-fated general election.

MPs will then vote on whether to approve the Queen’s Speech in the House of Commons on Thursday.

In effect, this vote will be one of confidence in May’s minority government. If it becomes clear that the PM doesn’t have the backing she needs to govern effectively, the pound could fall on the prospect of yet more political uncertainty.

The US news to watch out for includes the nation’s advance goods trade balance figure and pending home sales stats. Expectations for a third rate hike taking place in 2017 are currently below 50%. Any news which reduces the odds further is likely to weigh on the US dollar. Bank of Canada (BOC) Governor Stephen Poloz is also due to speak at an ECB panel. If he fuels recent speculation that an increase in borrowing costs is on the way the Canadian dollar could climb this afternoon.

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.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.