Foreign currency update 21 July
21 July 2016 by News DeskForeign currency update - Low commodity-bloc sentiment allowed Sterling to capitalise on the Australian Dollar, according to currency specialists TorFX
Foreign currency update – New Zealand Dollar (NZD) – GBP/NZD soared to score around a four cent gain on Wednesday evening as investors sold off the currency following the Reserve Bank of New Zealand’s (RBNZ) surprise economic assessment.
While the Pound benefitted due to surprisingly optimistic UK data and BoE news, the ‘Kiwi’ plummeted when the RBNZ indicated that policy easing had become more likely since its June policy meeting.
Many analysts had already expected the RBNZ to be considering an August interest rate cut. However, the sudden announcement and release of this July economic statement indicated to investors that economic situation was more dire than previously expected.
While the bank did not mention it, some analysts have predicted that Brexit-influenced panic in the global markets may have affected other major economies as well as commodity trades.
The bank announced that policy easing would ‘likely’ be required in order to ensure that inflation remained near the target range. The official rate is currently 2.25%, but could be cut to as low as 1.5%.
Foreign currency update
Pound Sterling (GBP) – The UK Pound surged higher by the end of Wednesday as optimistic employment data and statements from Bank of England agents improved Sterling sentiment in the markets.
Despite briefly trending flatly on Wednesday morning, the Pound surged higher by the end of the day as optimistic employment data and statements from Bank of England agents improved Sterling sentiment in the markets.
BoE regional agents speak to business owners across the UK in order to gauge the economy’s health. Their latest report indicated that despite a spike in business uncertainty and low demand for credit, most UK companies did not expect the Brexit to change their plans considerably. This indicated to some that investment and hiring plans would continue as normal despite Brexit concerns.
BoE policymaker Kristin Forbes also made a ‘keep calm and carry on’ comment regarding monetary policy, indicating that the bank would not act on kneejerk reaction to the Brexit and would wait for more solid data. UK unemployment was also solid, with May’s unemployment rate unexpectedly dropping from 5.0% to 4.9%. This lowest rate in 11 years was thanks to the creation of 54,000 positions.
Foreign currency update
US Dollar (USD) – The Pound to US Dollar exchange rate gained almost a cent and a half on Wednesday as UK business sentiment appeared to be more upbeat than expected.
The US Dollar remained solid throughout the session as recent positive US data improved market confidence that the US economy was in good health despite Brexit jitters. The ‘Greenback’ hit its highest level in four months against a basket of currencies as bets that the Federal Reserve could hike the key interest rate by 2017 slipped above 50%. Bets may continue to rise if US data continues to be positive, with the Brexit vote now behind us and July’s first data collections being released over the next month.
Foreign currency update
Euro (EUR) – The Pound to Euro exchange rate gained over a cent during Wednesday’s session as UK employment data and Bank of England (BoE) sentiments were more positive than expected.
Euro investors reassessed their positions on the shared currency throughout the day in anticipation of today’s European Central Bank (ECB) policy rating decision. The ECB is not expected to make any policy changes in its July meeting. However, economists are hoping to hear more detailed views from the central bank on the Brexit and its potential effects on the Eurozone’s economy. As a result, the interest rate is expected to remain at 0.00%, while the deposit rate stays at -0.40%.
A pessimistic forecast of a post-Brexit Eurozone would likely weigh on the Euro, but if the bank implies that the Eurozone can weather the worst of the Brexit’s damage the Euro could soar. On the other hand, in the small possibility that the ECB does decide to cut rates, the Euro will plummet.
Foreign currency update
Canadian Dollar (CAD) – The Canadian Dollar plummeted against the Pound during Wednesday trade. GBP/CAD gained over two cents as Sterling capitalised with solid UK data while the ‘Loonie’ Dollar floundered due to continued issues regarding the price of oil, Canada’s most lucrative commodity.
However, the Canadian Dollar began to push back on Thursday. Sterling fell limp on profit-taking once more after its Wednesday gains, allowing currencies that lost the most value (such as the commodity-correlated ‘Loonie’) to recover slightly.
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