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Old 11-09-2018, 10:50 AM
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Default Canarian Weekly: Pound/euro exchange rate climbs to three-week high

ALTHOUGH the Bank of England (BoE) did not raise interest rates at its November policy meeting, the mood towards the pound picked up, nevertheless, in the wake of the announcement.

While the latest US payrolls data pointed towards a continued tightening of the labour market, this was not enough to prevent GBP/USD exchange rate pushing higher.

The GBP/EUR exchange rate, meanwhile, climbed to a three-week high of 1.14 euros, as speculation over Brexit continued to pick up.

Even though signs still point towards the BoE leaving interest rates on hold for some months to come, thanks to the uncertainty surrounding Brexit, this was not enough to discourage investors.

As policymakers continue to signal that interest rates are likely to rise further, over the coming years. this has given GBP exchange rates a boost. Rumours that the UK and EU are nearing a breakthrough, on the future of financial services, also encouraged demand for the pound, in spite of the still-outstanding issue of the Irish border.

While October’s UK manufacturing and services PMIs proved disappointing, this was not enough to weigh down GBP exchange rates.

Meanwhile, demand for the euro failed to pick up in the wake of an acceleration in the Eurozone consumer price index,

While the inflation rate remained in excess of the European Central Bank’s (ECB) 2% target, investors still see little chance of interest rates rising, in the near future.

As the US trade deficit widened further than forecast, in September, this limited the appeal of the US dollar, in spite of the latest, positive, US jobs data. Anticipation, ahead of the mid-term elections, and lingering concerns over the impact of the Trump administration’s push for protectionism, also weighed on USD exchange rates.

Confidence in the pound could deteriorate if the third-quarter, UK, gross domestic product fails to show an improvement. Unless the UK economy demonstrates resilience in the face of Brexit anxiety, support for GBP exchange rates looks set to diminish.

An uptick in growth, on the other hand, could help the pound rise to fresh, multi-week highs, against its rivals. Stronger German trade data may offer the euro a rallying point, meanwhile, as investors look for an incentive to buy back into the single currency.

The issue of the controversial Italian budget could keep the euro under pressure, though, as the government shows no signs of budging from its budget-deficit target.

As long as the Federal Reserve maintains a hawkish outlook at its November policy meeting, paving the way for a December, interest-rate hike, this should keep the US dollar on a stronger footing.

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