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Sterling Drops as BoE’s Broadbent Fails to Offer Clues on Interest Rates

11 July 2017 by FC Exchange

Sterling softened against the Australian dollar (GBP/AUD), euro (GBP/EUR), and US dollar (GBP/USD) in Tuesday’s European session following Bank of England (BoE) Deputy Governor Ben Broadbent’s speech, which failed to divulge his monetary policy views.

Instead, Broadbent’s speech discussed the benefits of globalisation and suggested that reducing trade with the European Union would damage both economies and catalyse a rise in prices. Inflation in the UK has already been climbing and BoE Governor Mark Carney has suggested this year households will feel a hefty squeeze.

Broadbent suggested that a hard Brexit could negatively impact both trade and investment, saying: ‘All else equal, the first shift – i.e. away from services exports – would tend to lower UK income, the second to raise certain costs – that is, of food and machinery. Trade really is mutually beneficial and less of it costs us all.’

Meanwhile, UK wage growth data is due to be released this week which will give some indication as to how the UK labour market is performing. Employment data is a key factor in determining whether the Monetary Policy Committee (MPC) will be urged to increase interest rates and so the pound could fluctuate on the results of Wednesday’s release.

Markets had hoped Broadbent would reveal his position on interest rates after last month’s MPC vote which saw a more pronounced split than expected. Today, the pound sank against other majors as investors were left with no further hints as to how the next rate decision may go.

The pound sterling to Australian dollar exchange rate is trending around 0.40% lower, in the region of 1.6861.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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