The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to Swedish Krona (GBP/SEK) exchange rates continued to trend higher toward the close of Thursday’s European session after the Bank of England (BoE) Governor Mark Carney spoke at the inflation report press conference.
The central banker helped to inspire optimism that the UK could see interest rates rise sooner than markets had previously forecast.
Carney stated: ‘Output growth remains solid and domestic demand growth robust. The most likely next move in monetary policy is an increase in interest rates.’
Earlier… The Pound Sterling to Euro (GBP/EUR) and Pound Sterling to Swedish Krona (GBP/SEK) exchange rates gained in Thursday’s European trading as Bank of England (BoE) Governor Mark Carney commented on the central bank’s most recent inflation report.
The Pound was offered some support when Governor Carney suggested that interest rates may increase sooner than the market has currently forecast. In addition, he stated that the fall in inflation in the UK would fail to be like the Eurozone’s dangerous deflationary spiral.
Headline inflation is likely to dip into the negatives in coming months before recovering but Carney said the Monetary Policy Committee [MPC] is making the 2.0% inflation target one of its priorities.
Carney stated: ‘Inflation pressures could be greater if lower oil prices were to provide greater stimulus to global and domestic growth or if slack in the economy were to be absorbed more quickly than in the central projection.’
‘If these risks materialise, it would be appropriate for the Bank Rate to increase more quickly than embodied in current market yields but the likelihood is that those increases would still be more gradual and limited than in previous tightening cycles.’
Greece Talks Continue – Euro (EUR) Exchange Rate Volatile
Meanwhile, the Euro has been trading tentatively as ongoing talks regarding Greece seem to have reached a stalemate. A seven-hour meeting of Eurozone financial ministers took place on Wednesday but little was resolved.
One Greek official stated: ‘It is highly likely that there will be another meeting. In fact there may very well be many. It would be far too dangerous to leave this just hanging in the air without resolution, don’t you think?’
However, Carney discussed Grexit fears in the press conference and suggested that the threat of a ‘dirty exit’ from its bailout programme is much less than it was in 2012.
Carney suggested the Bank of England has a ‘direct line of sight into the exposure of Britain’s largest banks. The level of that exposure in the UK banking sector [to Greece] is less than 2% of common equity.’
Meanwhile, the Swedish Krona hit a six-year low against the US Dollar (SEK/USD) as a surprise rate cut emerged from Sweden’s central bank Riskbank. The Swedish central bank cut interest rates from 0.0% to -0.1%.
Central bank rate cuts have been occurring the world over as a result of lower oil prices and a speculated global slowdown.
BNP Paribas representative Colin Bermingham commented: ‘The move came as a surprise to the market. We had been forecasting a cut in the deposit rate and had cautioned that a move on the repo was a substitute for that, but a bit less likely as it is still seen as quite an unconventional move, the SNB [Swiss National Bank] being the only other major central bank to have taken the repo rate negative.’
However, Riskbank also announced it had embarked on a period of monetary stimulus, including the purchase of government bonds and maturities for a period of one to five years. The quantitative easing (QE) programme is expected to total around 10 billion Swedish Krona.
Bermingham continued: ‘The announcement of bond purchases was the key surprise. The size of the programme as just SEK 10 billion, which is barely over EUR 1 billion, means that it is mainly a signalling exercise. It demonstrated that the bank has the operational readiness to do QE on a larger scale and that the bank retains a distinct earning bias, as the size of the programme is too small to have an impact through most of the traditional channels through which QE operates.’
Pound Sterling to Euro (GBP/EUR) and Swedish Krona (GBP/SEK) Exchange Rate Forecast
The Euro to Pound Sterling (EUR/GBP) and Swedish Krona (EUR/SEK) exchange rates could be in for hefty fluctuations on Friday with the release of both German and Eurozone fourth quarter Gross Domestic Product (GDP) figures. Any favourable ecostats could push the Euro higher against other majors while any negative data could see the single currency tumble.
Meanwhile, Tuesday 17th will see Sweden publish its Inflation Rate figure which could have an impact on the Swedish Krona to Pound (SEK/GBP) and Euro (SEK/EUR) exchange rates.
Friday will be a relatively quiet day for UK data, with only Construction Output figures due for publication. However, Tuesday will also see UK Core Inflation Rate stats emerge. Economists have forecast a dip from 1.30% to 1.25% and it could be an event to pressure Pound Sterling lower if predictions are correct.
The Pound Sterling to Euro (GBP/EUR) exchange rate resides at 1.3534. The Pound Sterling to Swedish Krona (GBP/SEK) exchange rate is trending in the region of 13.0097.
