The Pound (GBP) exchange rate softened against the Euro (EUR) and US Dollar (USD) on Wednesday after the minutes of the latest Bank of England policy meeting showed that policy makers voted in favour of leaving Interest Rates unchanged at 0.5%.
Sterling weakened as the minutes showed that the majority of policy makers said that there was not enough evidence of inflationary pressures to justify increasing interest rates.
Weak wage growth and falling labour costs as well as signs that the global economy is slowing were the main reasons for them voting in favour of holding rates steady.
‘There remained few signs of inflationary pressure in the UK economy, even after looking through the effects of a stronger Sterling exchange rate. While the economy had been growing sufficiently quickly to absorb some of the slack in the economy, there were some signs that the pace of growth was beginning to ease,’ said the MPC minutes.
The minutes also showed that two members of the bank’s monetary policy committee voted in favour of a rate increase.
Both Martin Weale and Ian McCafferty were the only policy makers to call for a rise. They believe a falling in unemployment rate will soon trigger a rise in wages, which will in turn increase inflationary pressures.
The main cause for the MPC’s hesitation over hiking rates was highlighted as the weakness in the Eurozone and the overall global economy.
‘While the economy had been growing sufficiently quickly to absorb some of the slack in the economy, there were some signs that the pace of growth was beginning to ease. The housing market appeared to be cooling, with house-price growth slowing to a more sustainable pace,’ said the MPC minority in the minutes.
The minutes show that the loss of momentum in Europe was a major concern. Germany, the Eurozone’s largest economy could be sliding towards a recession and the wider region could enter a triple-dip recession by the end of the year. Also creating uncertainty is the slowdown of the Chinese economy and other emerging markets.
The report comes after BoE chief economist Andrew Haldane said last Friday that he was in favour of leaving interest rates lower for longer due to the uncertainties in both domestic and global growth.
Pound Sterling Exchange Rate Forecast
The Pound could strengthen at the end of the week, as investors will now turn their attention to Friday’s Gross Domestic Product (GDP) data. The economy is forecast to have continued to grow in the third quarter.
The Pound Sterling to Euro exchange rate is currently trending in the region of 1.2687.
The Pound Sterling to US Dollar exchange rate is currently trending in the region of 1.6042.
Since markets opened on Thursday the Pound has been relatively static against its major peers ahead of the retail sales data due for publication later in the morning.
Euro movement has been minimal due to mixed economic data releases. The French composite, manufacturing and services PMIs all declined more than the median market forecasts suggested. However the German composite and manufacturing PMI’s eclipsed the forecast figures, but the German Services PMI contracted.
It is likely, however, that the single currency will appreciate over the course of the day after Eurozone data proved to be positive. The Eurozone composite, services and manufacturing PMIs exceeded expectations.
US Dollar movement has been minimal since markets opened as traders await the labour market data due for publication on Thursday afternoon.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6030 ,
Pound Sterling,,Euro,1.2624 ,
Pound Sterling,,Australian Dollar,1.8221 ,
Pound Sterling,,New Zealand Dollar,2.0089 ,
US Dollar,,Pound Sterling,0.6239 ,
Euro,, Pound Sterling ,0.7921 ,
Australian Dollar,, Pound Sterling ,0.5482 ,
New Zealand Dollar,, Pound Sterling,0.4972 ,
[/table]
