GBP recovers from early losses, even after FOMC hawkishness

Sterling took an early-morning hit yesterday, but was able to claw back losses and even notch up some gains later in the session.

The pound is on strong form this morning. GBP/EUR has climbed 0.2% to €1.1455, while GBP/USD is up 0.3% to US$1.4247. GBP/AUD has climbed 0.8% to AU$1.7754, GBP/NZD is up 0.4% to NZ$1.9341, and GBP/CAD is up 0.3% to C$1.7525.

There was plenty on the economic calendar to keep exchange rates volatile. Read on to see how the pound fared…

What’s been happening?

The pound suffered sharp losses versus the euro and US dollar yesterday morning, but was able to recover later in the day.

The GfK January consumer confidence index surprised with a rise to -9, instead of holding steady at -13 as expected. Although an improvement, it still shows that UK household sentiment remains gloomy.

GBP/EUR experienced an early-morning slump on the latest Eurozone data. Although German retail sales figures performed much worse-than-expected, unemployment fell by an above-forecast -25,000.

Then, the Eurozone consumer price index figures for January showed the expected uptick in core inflation from 0.9% to 1%, which will have marginally improved the outlook for Eurozone monetary policy.

Overall inflation slowed less-than-expected year-on-year, dropping just ten basis points to 1.3% instead of to 1.2%.

GBP/USD recovered versus the US dollar and was even able to make gains after the Federal Open Market Committee (FOMC) published their post-meeting communique, despite hawkish signs from policymakers.

As well as an upbeat inflation forecast, the Fed suggested ‘further’ tightening may be necessary, which markets took to mean that policymakers believed they may have to hike interest rates more than the three times initially projected for this year.

What's coming up?

The UK Markit manufacturing PMI for January is set for release this morning, which could boost the pound if it shows that the sector started the New Year on solid form.

Eurozone manufacturing PMIs will also be released. Although these are finalised versions of previous estimates, the euro could still receive a boost as they are likely to highlight the strength in this sector of the currency bloc economy.

Assuming markets have gotten over their jubilance at the latest FOMC announcements, the ISM manufacturing index is set for release later.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Reaz Rahman
Senior Dealer

Reaz, our Senior Currency Dealer, joined us in January 2015. Reaz draws on his detailed knowledge of the foreign exchange markets to help customers to choose the right service and time to transfer.