Pound Sterling (GBP)
Tuesday’s British inflation data showed that the consumer price index had fallen to a fresh 5-year low of 1.5% in August, and the Pound tumbled against the majors as a result. With inflation moving away from the 2% target the probability of a near-future rate hike has reduced significantly.
However, Wednesday’s economic data may have aided speculation of a sooner-than-anticipated rate hike. The Bank of England released the minutes from their most recent monetary policy meeting in which there was the revelation that two of the policy makers had dissented from Governor Mark Carney’s stance on monetary policy.
Positive labour market data may also help boost Sterling. Average weekly earnings increased significantly whilst unemployment fell to 6.2%, improving upon the market consensus of 6.3%. Whilst Wednesday’s British data has been, on the whole, positive it may not be enough to sustain Sterling gains with anxieties over the Scottish referendum still weighing heavily.
Euro (EUR)
The Pound failed to make any headway against the Euro on Tuesday despite German economic sentiment falling to a 21-month low in August. The Pound to Euro exchange rate weakened by around half a cent as traders thought the UK’s negative CPI print outweighed the German data.
Sterling improved against the single currency on Tuesday afternoon, however, after a surprise move from British betting agency Betfair. Sportsbook, which is affiliated with Betfair’s online betting portal, announced that it will payout on all ‘No’ votes in Thursday’s Scottish independence referendum. Such is their confidence on a united Britain that traders bought back into the Pound which sent GBP/EUR exchange rate back to its opening levels.
Sterling has strengthened against the Euro on Wednesday after the publication of the Bank of England minutes from their most recent policy meeting which showed two of the policymakers to have dissented.
US Dollar (USD)
The Pound to US Dollar exchange rate is likely to be subject to heightened volatility on Wednesday with so many important events on the economic calendar.
The US Dollar is likely to soften during the European session as traders await the Federal Reserve decision on monetary policy. The pace of the Fed’s asset purchasing programme is likely to be slashed from $25 billion to $15 billion per month. Economists will be looking closely at the accompanying press confidence and Chairwoman Janet Yellen’s statement for future policy. The US Dollar has rallied by a massive 10 cents against Sterling over the past month amidst speculation that the Fed will hike rates sooner-than-expected. If the Fed meeting and accompanying statement prove to be dovish the US Dollar is likely to lose the gains it has enjoyed of late.
Canadian Dollar (CAD)
Sterling depreciated by over half a cent against the Canadian Dollar on Tuesday after soft inflation weighed on demand for the British currency. However, Wednesday’s positive British data could see a reversal in fortune as traders digest the latest figures.
There is heightened potential for Canadian Dollar volatility on Wednesday despite a lack of domestic data. If traders feel that the Fed policy statement indicates a rate hike in the foreseeable future the commodity-correlated Canadian Dollar could suffer.
Australian Dollar (AUD)
Risk sentiment in the Asia-Pacific region surged on Tuesday afternoon following news that the People’s Bank of China are providing cheap credit to China’s biggest five banks. The Pound declined by around -0.8 cents against the Australian Dollar following the announcement of the stimulus measures. This is due to traders pricing in the potential of an enhanced trade relationship between Australia and China.
New Zealand Dollar (NZD)
The expansive stimulus measures employed by the People’s Bank of China drove the Pound to New Zealand Dollar lower by around half a cent on Tuesday afternoon. The ‘Kiwi’ (NZD) Dollar is likely to be subject to volatility on Wednesday amidst so many key economic data publications, although the solitary New Zealand ecostat isn’t due until late on Wednesday evening.
South African Rand (ZAR)
The South African Rand has gained against many of its major competitors on Wednesday morning after inflation data indicated the possibility of a near-future interest rate hike. South African inflation has been steadily rising and moving away from the 6% target set by the central bank. Speculation is rife that in order to counteract this issue the benchmark interest rate will need to be raised.
