GBP Looking Good Vs USD But On The Decline Vs Euro
It’s a slow data week out of the UK this week so we have been relying on data from other economies to move GBP. Cable (GBPUSD) has seen some pretty volatile movement in the last 24 hours. There were attempts to go below 1.6570 area but this failed and we have seen GBPUSD shoot back up over the 1.6600 level. The pair is focused on market sentiment, and US events due to the lack of news out. A few members of the Fed are due to talk with particular interest being paid as to whether there will be any news about the current level of tapering.
Whilst strengthening against the US Dollar, we have seen the reverse happen with the GBPEUR pair as this has fallen consistently for the last 5 days. There are a couple of reasons for the weakening of the GBP/EUR. For a start, Mark Carney is in no rush to tighten monetary policy and there is no immediate need for interest rate hikes. There have also been murmurs coming out that a strong Pound does nothing to aid the UK economy. GBP has appreciated nearly 10% in the past 12 months and further appreciation could make exports more expensive, leading to reduced demand and hindering UK growth. Also, sometimes the markets like to run on rumour and trend and there is a feeling that maybe, just maybe GBP has reached its peak. Despite this little bit of negativity, the outlook for the U.K. economy remains bright but with no major economic reports scheduled for release over the next week, it means GBP is at the mercy of traders and speculators.
In New Zealand, interest rates were raised by 25bp to 2.75% and even though this decision was widely expected, the New Zealand dollar still traded sharply higher because the central bank raised its inflation and growth forecasts and said rates will rise by 2% over the next 2 years. Not only has New Zealand become the first major economy to raise interest rates but they signaled that today’s move represents the beginning of a longer term tightening phase.