The Pound Sterling to Euro (GBP/EUR) and South African Rand (GBP/ZAR) exchange rates were trending lower at the start of Thursday’s session while the Pound Sterling to Japanese Yen (GBP/JPY) and Pound Sterling to Indian Rupee (GBP/INR) exchange rates recorded gains.
The Bank of England (BoE) is expected to announce its interest rate decision later in the session which could see the Pound Sterling exchange rate fluctuate.
Although forecasts are for the benchmark interest rate to remain the same, Pound Sterling movement could occur.
Earlier… The Pound Sterling exchange rate recorded gains against the Euro (GBP/EUR), South African Rand (GBP/ZAR) and Indian Rupee (GBP/INR), while falling against the Japanese Yen (GBP/JPY) in the early part of Wednesday’s trading.
The Pound could be offered some additional strength if Markit’s UK Services and Composite Purchasing Managers Indexes (PMI) print favourably later in Wednesday’s session
The Pound Sterling exchange rate softened against the Euro (GBP/EUR), South African Rand (GBP/ZAR), Japanese Yen (GBP/JPY) and Indian Rupee (GBP/INR) in Tuesday’s European session despite a better-than-forecast Markit Construction Purchasing Managers Index (PMI) for the UK.
The index rose from 57.6 in December to 59.1 in January.
Markit stated: ‘January data pointed to a positive start to the year for the construction sector, with output and new business growth rebounding from the lows seen in December. That said, the rate of job creation slipped to a 13-month low and construction firms’ assessment of the business outlook was the second-lowest seen since October 2013.’
However, the Bank of England (BoE) is due to deliver its interest rate decision this week. The benchmark rate is forecast to remain unchanged—a factor weighing on the Pound. Weaker domestic figures and falling inflation have turned the central bank dovish and investors are suggesting that rate hikes in 2015 are out of the question entirely.
Euro Exchange Rate Dented by ECB’s Nowotny Suggestion that Inflation May Remain Low
Meanwhile, the Euro began Tuesday’s session a little softer against other majors after European Central Bank (ECB) official Ewald Nowotny discussed the possibility of deflation in the 19-nation currency bloc continuing for some time.
Nowotny commented: ‘We have to be very cautious with the forecasts for inflation. I cannot exclude that also at the level of the Eurozone for some of the months to come we might have negative inflation rates.’
However, Nowotny did suggest that inflation could reach 0.8% in 2015.
Nowotny continued: ‘In the Euro area for 2015 we expect very low inflation rates… something like 0.8%, and this is headline inflation.’
South African Manufacturing Rises – Rand (ZAR) Exchange Rate Offered Support
Meanwhile, Monday saw South African Manufacturing take an upswing in January with the KAGISO index rising from 50.2 to 54.2.
Industry expert Andre Coetzee commented: ‘While it is not unusual for the adjusted and unadjusted figures to move in separate directions, the divergence tends to be particularly large in January as the seasonal factor is typically low.’
‘Indeed, the unadjusted PMI is inclined to fall in January, but this year’s drop was smaller than usual. As a result, the seasonally adjusted figure increased significantly and may overstate the improvement in actual manufacturing output in January.’
Friday will see the release of South African Foreign Exchange Reserves ecostats which are unlikely to significantly affect the Rand to Pound Sterling (ZAR/GBP) exchange rate.
Bank of Japan (BoJ) Speech Ahead – Yen (JPY) Exchange Rate Could Fluctuate
Meanwhile, the Japanese Yen could be in for a heavy day of trading on Wednesday when Markit releases its Composite and Services PMI’s for Japan. In addition, Bank of Japan (BOJ) Deputy Governor Kikuo Iwata is scheduled to speak at a press conference.
In December, both the composite and services index remained above the 50.0 benchmark which separates expansion from contraction. Services recorded a 51.7 figure while the composite measure reached 51.9.
In addition, the Labour Cash Earnings stat is due out and is expected to record 1.6% growth on the year in December from 0.1%. Any favourable ecostats for the safe-haven currency are likely to see the JPY/GBP exchange rate gain.
Reserve Bank of India (RBI) Keep Interest Rates on Hold
Meanwhile, the Reserve Bank of India (RBI) held interest rates steady on Tuesday after recently reducing the benchmark rate. Instead of another cut, the central bank attempted to encourage banks to lower their lending rates and give out more loans, by cutting the statutory liquidity ratio (SLR).
After the RBI rate cut, only 3 out of 45 commercial banks slashed borrowing costs.
RBI Governor Raghuram Rajan stated: ‘To get that lending they will have to be more competitive, which means they will have to cut base rate. I am hopeful it is a matter of time before banks judge that they should pass it on.’
‘Many have been relatively quick to cut their deposit rates, but not so quick to cut their lending rates, I presume some are hoping they can get the spread for a little more time to repair banks.’
Pound Sterling Exchange Rate Forecast – GBP/EUR, GBP/ZAR, GBP/JPY, GBP/INR
Wednesday will see the release of UK Composite and Services PMI’s which could have a moderate effect on the Pound Sterling exchange rate. Thursday will be the day of the BoE interest rate announcement, while Friday will see UK Trade Balance figures emerge.
The Pound Sterling to Euro (GBP/EUR) exchange rate is trending in the region of 1.3257. The Pound Sterling to South African Rand (GBP/ZAR) exchange rate is reaching 17.2350. The Pound Sterling to Japanese Yen (GBP/JPY) exchange rate is trading at 176.5400. The Pound Sterling to Indian Rupee (GBP/INR) exchange rate is hovering at 92.7510.
