The comments made by Governor Andrew Bailey of the Bank of England last week considerably tempered investor enthusiasm, causing the British Pound to fall sharply against most of its peers and lose more than 1% vs the Euro and the US Dollar. In the future, a lack of UK data releases could make GBP exchange rates vulnerable to changes in response to a speech that BoE member Huw Pill is scheduled to give. In light of Pill’s comments and Governor Bailey’s remarks from last Thursday, Sterling may continue to weaken and conclude the week behind its competitors.
Last week, the Euro tripped out of the gate after lower-than-expected inflation data for Germany and the Eurozone were released. In fact, as speculation about a second ECB interest rate decrease later this month intensified due to the lacklustre inflation data, the euro fell to a 29-month low versus the pound. However, ECB Vice-President Luis de Guindos’ warning of possible negative consequences to the Eurozone economy has kept pressure on the bloc’s single currency high.
After posting significant gains last week, particularly in the wake of Friday’s payroll report, the US dollar did not move much in early European trading this morning. The reading cooled concerns about a potential downturn in the US economy and strengthened the argument that the Fed won’t need to drastically lower interest rates to boost the economy. In November, investors were observed pricing in a 90% chance of a 25-basis point drop and largely wiping out bets on another 50-basis point cut.
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