Doubts that the Bank of England will be cutting interest rates when it meets one week today were reflected in the pound yesterday as sterling exchange rates rose to a near one month high against the Euro at 1.1871 on the interbank rate.
Against the US dollar, sterling yesterday hit a fresh high of 1.3152 on the interbank rate, over 1.9224 on GBPAUD interbank rates and nearly 2 on GBPNZD interbank rates at 1.9947.
Sterling volatility has been linked to the potential of the Bank of England to cut interest rates at their next meeting on January 30th. A lower interest rate may typically make a currency less attractive to hold and lose value, the ongoing news could be a point of volatility for the pound ahead.
Today, there is limited UK economic data, but we could still see some movement on sterling rates. Of interest will be pound to euro exchange rates around the first European Central Bank interest rate decision of 2020 at 12.45, followed by the rate statement at 13.30, both UK Time.
Christine Lagarde, the President of the ECB, will be in focus for potentially outlining a review of monetary policy strategy at the bank. Whilst no change is expected, there is potential for movement on euro exchange rates as the market seeks to position itself according to the commentary. Where investors were predicting a rate cut ahead, markets are now potentially eying a rate rise in 2021, following some improved economic data with Eurozone Services data rising to a 4-month high recently.
Sajid Javid, The British Chancellor caused some controversy yesterday in openly confronting the United States over a digital tax on large international firms, a measure due to come into force in April targeting a tax of 2% on global revenues from firms like facebook and google, operating in the UK.
The measures announced at the Davos economic summit immediately drew a response from the US where many of the companies are based, with US Treasury Secretary Steven Mnuchin indicating if that tax goes ahead, then the US might be looking to force a tax on automotive sectors, a key export of the UK.
Sterling did finish the day higher as explained above, but this news reflects the less than clear path ahead as the UK forges a new global trading relationship.
The pound had last week lost ground as UK economic data showed a contraction in economic growth for November of last year. Data this week showed a rise in employment to record levels of 76.3%, reflecting a health in the economy that might make the previously expected interest rate cut unnecessary.
The last two weeks on this topic proves how uncertain the currency markets can be, and how quickly sentiment can change, triggering volatility and movement on the exchange rates.
The Coronavirus sweeping China and with reported cases in the US is a story to watch, with global markets on stand-by from potential negative economic consequences. The Japanese Yen strengthened yesterday in response to this, the US dollar could also be one to watch if the crisis deepens.
Looking across the pound, the US dollar may receive some attention when the latest Jobless Claims data is released at 13.30 UK time, the health of the US economy can be a key factor to influence the strength of the currency.
The Australian dollar has risen in value this morning, as Unemployment moved down to 5.1%, from the 5.2% predicted and previous. The RBA (Reserve Bank of Australia) has been looking to the latest employment news to ascertain the potential for any further interest rate assessments, this latest news reduces sharply the prospect of a February rate cut from the RBA, and the currency is 0.5% stronger against sterling at the time of writing.
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