Sterling soars on BoE and Brexit optimism

​​​​​​Today's news headlines:

  • 'UK Pound zips higher with Brexit angst receding’. Concerns over Brexit are continuing to recede with progression in cross-party talks. Possible Labour Party support for a new referendum is seen as unrelated to this move. (Financial Times)
  • 'Trump calls on Fed to cut rates by 1% and urges more quantitative easing’. With strong underlying economic growth and limited inflationary pressure, the Federal Reserve may have scope to remain dovish over monetary policy, although this very direct attack by the President is a cause for concern. (CNBC)
  • 'Bank of England set to leave interest rates unchanged — but hint at a summer rise’. An improving economic backdrop, the fact a no-deal Brexit looks increasingly unlikely, and building inflation risks could leave the Monetary Policy Committee (MPC) hinting at a potential rate hike in the coming months. (Yahoo Finance)

Pound rising

The Pound broke higher during Tuesday’s trade against both the Euro and US Dollar amid speculation that downside risk for the currency was abating. Theresa May has said she wants to conclude cross-party talks over Brexit within a week, paving the way either for a formal deal or at least a series of votes in parliament to determine the way ahead. Ultimately no-deal looks less likely, and there’s speculation that the Bank of England may hint at a summer interest rate hike in a bid to keep inflationary pressures in check. Sterling saw its best day of gains in six weeks against the US Dollar and could continue along this path if the positive theme can be maintained.

Trump’s economics

Donald Trump has been vociferous in his criticism of the Federal Reserve’s handling of monetary policy and wants to see aggressive interest rate cuts in a bid to further fuel the economy. This isn’t the first such interference in monetary policy by the President but by far the most aggressive. Still, given the underwhelming inflation outlook, the Fed may feel more inclined to accede to his wishes. Today’s policy statement and subsequent press conference will be closely followed for any indication of a more dovish stance.

GBP/USD

The Pound posted its biggest one-day gain against the US Dollar since mid-March in yesterday’s session, lifting the pair back to levels not seen in almost two weeks as a result. Given the rumoured policy convergence between the Bank of England and the Fed, further Sterling gains could follow.

EUR/USD

The Euro posted a third consecutive day of gains over the US Dollar during yesterday’s session, with a slew of better-than-expected Eurozone economic readings lending Euro support. Friday’s inflation data could prove instrumental in determining where the pair goes next.

GBP/EUR

In yesterday’s session, Sterling made an advance against the Euro, with upbeat economic data from the Eurozone serving to limit gains. Tomorrow’s policy update from the Bank of England and Brexit developments will be closely followed.