BoE Forecast Trims Sterling’s Strength to Euro and Dollar
The Pound has lost ground against the Euro and the US Dollar after The Bank of England’s pessimistic “Super Thursday” statement. The British central bank increased its forecast for inflation, cut back on growth forecasts and put off any expectation for an interest rate increase until 2019. This caution isn’t surprising, since the June general elections and Brexit negotiations are still risks that lie ahead for the Pound and the British economy.
The US Dollar is holding steady against the Pound and the Euro, after falling this week due to political uncertainty after President Trump fired the FBI director. The Dollar remains resilient on confidence that the economy is strong enough for the US Federal Reserve to raise the US interest rates in June.
Pound Sterling – UK Markets
On Friday, the Pound struggled against the Euro and the US Dollar. The Sterling to Euro exchange rate was set at €1.18, while the British currency dropped to a one-week low against the US Dollar, and is trading at $1.28.
This was due to the Bank of England’s (BoE) quarterly inflation report, which was released on Thursday. The BoE admitted that an interest rate increase, from the current record low of 0.25%, is unlikely to happen until the end of 2019. The British central bank cut the 2017 growth forecast to 1.9%, slightly down from the 2% that was expected. The bigger changes were on the inflation forecast, after prices rose faster than the Bank had predicted. The BoE forecasts that inflation will be 2.7% this quarter, 0.3% up from its forecast in February.
Economists said that the report was “predictable”. They suggest that the BoE’s revisions for inflation and growth should be taken “with a pinch of salt,” due to the uncertainty created by this June’s parliamentary elections and the upcoming start of Brexit negotiations with the EU.
US Dollar – US Markets
The US Dollar remained stable against the Euro and is trading at $0.92. The US currency took advantage of the Pound’s drop and managed to put the rate at £0.77. The results from the BoE’s report had also contributed to the good performance of the US Dollar.
US economic data released in the last few days, suggest that there is underlying strength in the labour market and that inflation is picking up in the economy. Commerce Secretary Wilbur Ross’ announcement that the US and China have reached a trade agreement, may strengthen the US currency. The US Commerce Secretary said that Visa, MasterCard and American Express will be allowed full access in China. It was also agreed that the US will import Chinese cooked poultry, and China will allow US imports of beef.
Euro – European Markets
The Euro surged a bit against its major rivals – the Pound and the US Dollar – following the report of the German GDP and CPI rates. On today’s market the single currency is trading at $1.08 and £0.84.
The data, announced by the German Federal Statistics Office (Destatis), showed that Germany’s economy grew faster in the first quarter of the year by 0.6%. That is 0.2% more than the last four months of 2016, when the rate was 0.4%. Europe’s largest economy has expanded with a GDP rate of 1.7% year-on-year. According to Destatis, the German economy grew due to larger investments in construction and machinery, strong exports and steady household spending.
The country’s CPI was also announced, confirming expectations. The prices remained flat in April – 0% CPI and, compared to the same period last year, the increase was only 2%.
Good news for the Euro came from France as well. The French National Statistics Office (INSEE) announced that employment in the country reached the highest level since 2008, with the addition of around 50,000 new jobs in the last four months, mainly in the service sector. That is the seventh quarter in a row in which France has shown improvement in its labour sector, a clear sign of its strengthening economy.
In light of Germany and France’s positive economic reports, many analysts foresee a bright future for the Euro, which has “bottomed out following the French election”. According to experts of Japan’s largest bank — The Bank of Tokyo-Mitsubishi UFJ (BTMU) — the single currency is entering its strongest period in the year. They expect the Euro to rise to $1.12 in the coming months and to $1.14 by the end of 2017.
Other Currencies – Highlights
The Pound is on its lowest weekly rate against the South African Rand, trading at 17.22 ZAR. The South African currency was boosted by the increasing prices of precious metals and the expansion of local mining production.
Sterling remains high against the Canadian Dollar at 1.77 CAD. However, the Loonie is strengthening against other major currencies – the US Dollar and the Euro. According to some analysts, the Pound is unlikely to remain strong in the long term due to the increasing prices of oil and other commodities, on which the Canadian dollar depends.