After being on the rise for 10 months, the Pound Sterling edged lower against the Dollar on Thursday. Some investors enjoyed numerous profits after the U.S Federal Reserve left policies unchanged and hinted at the possibility of interest rates rising more slowly than expected. This could signify the beginning of a different era in the world of Forex.
Lately, the Sterling Pound has been boosted by support from a retail sales survey by a leading industry body which has been crucial in keeping all weaknesses confined within recent broad trading ranges. According to the Confederation of British Industry’s latest Distributive Trades Survey which was published on Thursday, the Sterling Pound rose to a three-month high in July. A senior Foreign exchange strategists at CMC markets, said that the impressive figures posted gave the Sterling pound the much-needed boost.
The Sterling Pound took advantage of the skidding Dollar rising to as high as $1.3157, a figure that had not been attained since September last year but by 1600GMT; the Sterling had dropped back to $1.3065 which represented 0.4 percent depreciation rate.
Consumer Morale and Inflation
The stock market concentrated more on the announcement made by the Federal Reserve. Key stakeholders noted that both overall and core inflation had declined. Many traders took that as a major indication that an anticipated slowdown in consumer prices may not come as early as they hoped and hence the increase in exchange rates will come more slowly than they had anticipated.
The Brexit vote last year led to one of the biggest falls of the Sterling Pound which pushed inflation higher. Consumers have been forced to spend even further as the real effects of the vote start to manifest on the economy. A market research by GfK showed that the consumer confidence index fell from 10 in June to 12 in July.
A Stronger Euro
The story hasn’t been the same when it comes to the Euro. The Sterling Pound has fallen to an eight-month low in the recent weeks. This can be attributed to the fact that the Euro has rallied on the weaknesses of the Dollar and the expected tightening of the monetary policy by the European Central Bank. Although the Sterling Pound gained some momentum on Thursday, it was still less than at least a cent away from that low. At 1600GMT on Thursday, the rate stood at 89.23 pence per Euro.
A market strategist at CMC Markets, acknowledges the fact it is possible to go back to last year’s 93 pence per Euro, but a break below 89 pence could mean that traders have to move back to the support of 88.70/80, at least as a short-term strategy of mitigating the situation.
Market data which was published early Wednesday indicated that UK’s economy had gathered only a little speed in the second quarter after stalling at the start of 2017. This data further curtailed any expectations of the Bank of England raising exchange rates in the coming months.
The whole issue of the Sterling Pound has been complicated further with the falling of stock markets worldwide on Friday. Although the oil prices hit their highest weekly percentage in 2017, several big companies disappointed. The tobacco shares dropped sharply, and those of Altria Group dropped by 9.5 percent. Even Amazon’s stock fell.
Although the minority of BoE rate-setters who wish to hike interest rates tend to think that exports and investment will compensate for a consumer slowdown, most of them are wary about the actual period the downturn is likely going to exist.
All eyes are now focused on the BoE policy meeting with the central bank scheduled to take place next week on Friday. Merrill Lynch, a senior official at the Bank of America, says that she doesn’t expect any changes in interest rates since the central bank is most likely going to adopt a “wait and see” approach.
This comes at a critical time for investors to choose which path is meant to see them through success. Various market watchers advise that a careful analysis of the state of the forex market is the way to go.