Optimistic Bank of England quarterly bulletin strengthens the Pound

Claire Hogarth09/Dec/2014Currency Updates

GBP

Sterling gained on Monday after the Bank of England said that households in Britain would be able cope with a gradual increase in interest rates. The UK currency gained by 0.3% on the Euro and strengthened by 0.5% on the Dollar during the course of the day.

In its quarterly bulletin released on Monday, the Bank of England’s focus was solely on interest rates, namely, the effect an interest rate hike would have on households. In a detailed report the central bank found that just 4% of borrowers would need to “take action” if the interest rate rose by 2%, i.e. by cutting spending or working longer hours. The optimistic tone of the bulletin suggests that households would be able to handle the increase in living costs, and provides a further indication that an interest rate hike will occur at some point next year, in line with our forecasts. Any increase, it seems, will be a gradual one.

Mostly second tier releases out in the UK today with market focus on the National Institute of Economic and Social Research GDP estimate at 3pm.

EUR

The single currency climbed by 0.2% against the Dollar having fallen during Asian trading.

Industrial production in Germany disappointed once again in October, inching up by just 0.2% on the back of a notable fall in energy output which fell by 1.1% on September. Despite this, the annualised figure showed an increase of 0.8%, its greatest yearly climb in three months. Elsewhere, it was announced that investor confidence in the Eurozone improved to its highest level in four months in December. The index remained negative at -2.5 indicating pessimism, although the reading was significantly better than last month’s -11.9, and well above expectations.

Today is likely to be another equally quiet day within the Eurozone in terms of data. France and Germany will, however, be announcing trade balance data, although this will take place before markets open in the UK.

USD

The greenback declined against most of its G10 peers during trading on Monday by 0.2%, but the US Dollar index was able to hit an eight year high in trade-weighted terms after a fall in Chinese exports boosted demand for the US currency.

The US Dollar also appreciated to its strongest position against the Euro in two years as reports out this week are expected to show that retail sales and consumer confidence have both improved after payrolls growth beat all forecasts on Friday. Concerns of Dollar strength were raised on Monday after a Bank for International Settlements report warned that a strong Dollar would pose a real threat to the stability of emerging market currencies.

Tuesday is set to be another day of limited data releases in the US. The main announcement of the day will come from the US Census Bureau at 3pm GMT with Wholesale Inventories for October.

Rest of the world

The Nigerian currency has fallen once again as oil prices continue to plunge, dipping below $65 a barrel. Central bank intervention last week helped it claw back some of its losses, but with oil prices showing no signs of recovery, the Naira has remained weak, falling by as much as 2% during trading on Monday.

South Africa’s Rand fell to a six year low versus the Dollar after the country’s current account deficit narrowed less than what was forecast. The shortfall in trade of 6% was 0.2% worse than the median estimate had predicted causing the currency to fall by 1.7%.

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Written by Claire Hogarth

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