Sterling hits two year high against the Euro as interest rate hike draws closer

Claire Hogarth26/Sep/2014Currency Updates

GBP

The Pound rose to its strongest position against the Euro since July 2012 and edged to within 0.6% of a six year high during trading on Thursday afternoon. The UK currency appreciated by 0.3% with analysts at ING suggesting that the six year high may well be reached within the next 3 months. After falling early on in trading, Sterling appreciated slightly against the Dollar after a speech by the Governor of the Bank of England to finish the day 0.2% down.

Speaking at a conference in Newport yesterday, Governor Carney signalled that the time for an interest rate hike was drawing near. He commented that Britain’s outlook has been much improved, but failed to give any more details regarding timings or magnitude of the hike, adding only that the move would be data dependent. Judgement about when the rate will increase has become more “balanced” according to Carney, with most economists suggesting that this may well take place early next year, although late 2014 is not out of the question.

EUR

The single currency suffered a double blow yesterday. Having fallen to its lowest level against the Pound, the Euro also reached its weakest position against the Dollar since November 2012 as it fell by 0.4% during London trading on Thursday.

Traders are showing confidence in Mario Draghi, with the ECB signalling that it plans to boost the central bank’s balance sheet from €2 trillion to €3 trillion, expanding the supply of Euros in the process. As more Euros make their way into circulation in the foreign exchange market the single currency is poised to depreciate further with many analysts and economists suggesting that the Euro will plummet by around 6% within the next 12 months.

No major data releases within the Eurozone today with the European market having one eye on next Tuesday and the release of the Consumer Price Index for September.

USD

Bloomberg’s US Dollar Index reached a new four year high during morning trading as the greenback strengthened on the Euro by almost 0.6% and the Pound by around 0.3% as the markets opened. However, data released in early afternoon by the US Census Bureau yielded weaker than expected figures. New orders for durable goods fell by 18.2% in August. However this comes on the heels of a 22.5% July increase – obviously one of the most volatile numbers in the US. Overall, the three month average is consistent with a solid trend of expanding capital expenditures by cash-rich US corporates.

The main announcement in the States today is the release of the country’s GDP figure at 1:30pm London time and, in line with other strong data coming out of the US recently, this figure is expected to be a positive one for the Dollar. This figure is anticipated to be around 4.6% which would be the highest per quarter increase in GDP since the start of 2010 if it were to materialise.

Rest of the world

A very bad trading day for the New Zealand Dollar on Thursday saw the “kiwi” slide to a one year low, falling against all of its 31 major peers, most notably by 1.7% against the USD. The currency has now fallen 4.7% in the past three months after the nation’s central bank had signalled possible intervention due to the exchange rate being “unjustified and unsustainable”. The country’s currency has shown considerable strength in recent months but, at its current level, is creating imbalances in the economy.

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Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.