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British Pound (GBP) on 11/02: Pound exchange rate complex heads higher, BoE risks lie ahead

By Gary Howes
British pound GBP exchange rates

Today's Pound Rates.

  • British pound to Euro exchange rate: 0.21 pct higher at 1.2046.
  • British pound to US dollar: 0.02 pct higher at 1.6407.
  • British pound to Australian dollar: 0.46 pct lower at 1.8246.
  • British pound to Canadian dollar rate: 0.34 pct higher at 1.8201.
  • British pound to New Zealand dollar rate: 0.29 pct lower at 1.9785.
  • British pound to South African Rand rate: 0.95 pct lower at 18.1150.

  • BE AWARE: All the above quotes are taken from the wholesale inter-bank markets. Your bank will affix a spread to the rate at their discretion when passing on a retail rate. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.

    16:26: Pound remains vulnerable

    Despite a relatively good day on the FX markets risks will appear tomorrow.

    "The pound firmed against the U.S. dollar but held below its recent highs ahead of tomorrow’s Bank of England Quarterly Inflation Report. Investors are eager to see how the BOE will set market expectations on eventual monetary policy tightening in light of recent improvements in the U.K. economy. Specifically, any lowering of the bank’s unemployment rate threshold, currently at 7.0%, would be seen as pushing out the timeline for a rate hike and could keep the pound vulnerable." - Omer Esiner at Commonwealth FX.

    15:11: Lloyds Bank forecasts

    14:38: Top 10 Takeaways from Janet Yellen's Prepared Remarks:

    The GBP/USD is powering ahead in the afternoon session. The prepared notes from the upcoming Yellen testimony are out. Kathy Lien at BK Asset Management gives her verdict:
  • Expect Continuity > Taper to Continue in Measured Steps
  • There's No Preset Course for Anything
  • Don't Expect a Rate Hike when the Unemployment Rate Drops to 6.5%
  • 6.5% is a Threshold for Re-considering Overall Economic Outlook
  • Yellen Saw Economic Improvements in Second Half of Last Year
  • But She's Not Satisfied with Labor Market Recovery
  • Not Happy with Unemployment Rate because it Doesn't Provide a Full View of Jobs
  • Don't See the Swings in Emerging Markets as a Big Risk for US Outlook
  • Believes Softness in Inflation Likely to be Transitory
  • Expects Monetary Policy to Remain Extremely Accommodative after QE Ends
  • 13:29: Year-end forecasts for GBP from Lloyds

    Lloyds Bank Research update on their year-end sterling forecasts:

    "GBP/EUR has given back last month’s gains, falling from a recent high of 1.2250 to end little changed below 1.2050. The recent fall highlights the ongoing challenges still facing the pound. We target GBP/USD at $1.52 and GBP/EUR at €1.22 by year end."

    12:43: Vodafone deal could help see Sterling / Dollar hit 1.68

    More from Nomura, this time on the strong inflows of capital into the UK which they say is part of the reason that they see GBP as a star performer in 2014:

    "As in the eurozone, we are also seeing significant inflows into UK equity. Furthermore, the completion of the Verizon-Vodafone transaction expected for the end of Q1 should provide further upward pressure on GBP as this is likely to lead to almost $10bn of flow as UK-based investors convert their dollar denominated dividend payouts from the transaction into GBP.

    "The impact of this dividend payment will be felt both in Q1 and Q2 owing to the timing of the payout, and pushes our forecast for both quarters up slightly. The expected flows and rate hikes should bring GBP/USD to 1.68 by the end of Q3, before gradually ceding to a strengthening USD."

    12:40: Nomura confirm GBP as strong outperformer in 2014

    Nomura have confirmed to markets that they are bullish on GBP in 2014. However, the bank appears to base this premise on a rate cut at the Bank of England in August 2014 - well ahead of consensus which sees early to mid 2015.

    12:33: GBP in recovery mode, GBP/ZAR threatens 18

    The British pound has staged a strong comeback through the course of Tuesday's session with gains against the majority of currencies being witnessed. Of note though is the South African rand which is intent on pushing the GBP/ZAR below 18.0000. The South African rand gained on news that South African unemployment dropped to 24.1 percent in the fourth quarter from a revised 24.5 percent the previous three months."

    12:30: EUR vulnerable to further losses vs GBP

    "While resistance holds on closing basis at 0.8349, the cross remains vulnerable as bearish conditions persist. Support is at 0.8266 ahead of 0.8160." = UBS.

    12:14: Major European Bank Trader 'a Little Less Confident" on GBP/USD

    "No change in positioning from yesterday with this prop trader at a major European bank still running a long cable position, although his language is less bullish than yesterday. He felt that this pair behaved very bullishly on Friday but the fact that it did nothing yesterday has him a little less confident it seems. There are some major risk events looming and he has a very tight strategy stop in place below 1.6360." - Sean Lee at FXWW.

    12:00: GBP recovers against the EUR

    The importance of 1.2 in the GPB/EUR exchange rate has been proven yet again. The rate has moved higher after a soft start proving markets are not comfortable extending any moves ahead of tomorrow's event risk.

    11:24: EUR-GBP to drift above 0.83

    "Cable is likely to trade close to 1.64 as investors are unlikely to take aggressive positions ahead of tomorrow's BoE inflation report. EUR-GBP will also probably trade further above 0.83." - UniCredit Bank.

    11:00: Favouring upside in EUR/GBP

    We hear from ICN Financial on the outlook for the euro pound:

    "The pair remains caught between the Falling Wedge resistance at 0.8340 and the support offered by 50% Fibonacci correction at 0.8285 and as we mentioned in previous reports, the breach of 0.8340 supports the pair to extend gains toward 0.8410 then 0.8560.

    "In general, since 61.8% Fibonacci correction at 0.8160 remained steady against the latest downside attempt, the upside remains favored although the pair might need to fluctuate sideways temporarily due to negativity on momentum indicators."

    10:37: How a strong sterling benefits exports

    The assertion that a strong currency is bad for exports is well known. But, there exist arguments, particularly as relating to the UK, that a strong sterling may actually boost exports.

    Carl Hasty, Director at Smart Currency Business, says: "It will be interesting to see if businesses will seize this opportunity and invest in imports, especially in cases when doing so helps cut supply-side costs and improves a business's bottom line. Medium-sized businesses in particular could help boost the UK's trade activity. More needs to be done in order to create awareness and provide support to businesses attempting to do so.

    "Although it can be argued that exports are a sport for weak currencies, as a strong currency theoretically hampers export competitiveness, the view barely scratches the surface of a larger economic playing field and hasn't stopped Germany becoming one of the world's largest exporters. A stronger currency means cheaper imports; given their mitigating effect on costs, cheaper imports can be manufactured or repackaged into goods and services that are then exported at relatively low price points. Re-exporting can help a business grow, while feeding activity back into the British economy."

    10:13: Today's GBP/USD range

    "For today, we expect GBP/USD to remain confined to the recent 1.6350-1.6450 range." - Lloyds Bank.

    09:27: Asian Central Bank seen speculating on GBP

    We have mentioned the impact Asian Central Banks are having on the FX markets with regards to the Euro. Today we have reports that they are looking to pressure GBP/USD lower.

    According to Sean Lee at ForexTell:

    "Asian CBs are active speculators in the FX market and they certainly have a lot of cash to play with. We hear this morning that the ACBs are looking to sell GBP/USD at 1.6440 and up to 1.6470, looking for a move back to 1.6390. They will be buyers at 1.6350 with a tight stop (around 1.6330) looking for a mvoe back to 1.64."

    09:07: GBP/USD trend & momentum indicators wane

    "Trend and momentum indicators are marginally bearish, the key support stands at the 100-dma (today at 1.6267), selling interest is seen below. We are curious to hear what Carney has to say on unexpected improvement in UK’s jobs market and the implications on BoE’s monetary policy. As we expect Carney to remain dovish, the important question here is: will the markets buy Carney’s arguments?" - Swissquote Bank.

    08:42: GBP/USD faces Yellen risks

    For Cable it is all about central banks this week. The Fed’s new ChairWoman Yellen will give testimony before the House Financial Services Committee today to present Fed’ semi-annual Monetary Policy Report to Congress.

    "Yellen is expected to sound dovish especially given the weakness in jobs data since the tapering has started. The ten year US government yields are below 2.70%, the DXY index is under pressure, below 21-dma (80.867)," says Ipek Ozkardeskaya at Swissquote Research.

    08:21: Australian dollar powering ahead

    The correction in the GBP/AUD continues as we see the Aus Dollar to be one of the outperforms today.

    According to Felicity Emmett at ANZ Research Australian business conditions continue to improve:

    "After a sharp rise in December, business conditions nudged higher again in January, cementing the solid upward trend. Low interest rates and the lower AUD look to be supporting businesses, with conditions in the manufacturing, construction and retail sectors continuing to improve. Conditions in all other industries declined, although this followed strong gains in the previous month."

    08:17: Cable unchanged

    Cable has hardly moved over the past 24 hours. The tight range in the pound dollar exchange rate is testament to the caution being exercised amongst traders ahead of tomorrow's inflation report at the Bank of England.

    08:15: GBP/EUR testing support @ 1.2

    The British pound (GBP) is lower against the euro on Tuesday and we have already seen the 1.2 level breach. How long can this level hold as support ahead of a quick run down into the mid 1.19's? With no data out of the UK today defending this position will be tricky. Yesterday we reported Asian sovereigns were buying Euro's, this could well be the case again today as we are seeing sterling solid elsewhere.

    HIGHLIGHTS of Monday's coverage:

  • Unicredit: We still forecast a first rate hike in 4Q14
  • Northedge: No rate rise until after 2015 elections
  • UK business optimism reached its highest level for 22 years in January
  • Sterling patiently awaits Bank of England Quarterly Inflation Report
  • KBC Markets: We have a longer term sterling positive bias

  • Find out more here.