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Monthly Wrap: Pound fluctuating on Brexit negotiations, BoE rumours

currency-newsMonthly Wrap: Pound fluctuating on Brexit negotiations, BoE rumours
Key takeaways:
  • Pound higher vs. US dollar but lower vs. euro  
  • Is the UK moving closer to higher interest rates?
  • GBP Monthly lows: €1.11, $1.28, AU$1.62, NZ$1.74, C$1.62
  • GBP Monthly highs: €1.14, $1.32, AU$1.71, NZ$1.76, C$1.68
After a politically focused June, things calmed down ever so slightly in July.

While the surprising outcome of the UK general election continued making waves last month, PM Theresa May defied calls for her resignation and remained at the helm as Brexit negotiations began in earnest.

So far progress has been slow, with rumours of infighting in the Conservative government and contradictory comments on subjects like immigration and the UK’s transitory deal weighing on the pound.

Shifting sentiment regarding the likelihood of the Bank of England (BoE) adjusting stimulus in the near future has also been a major cause of pound movement over the last couple of weeks.

An unexpected dip in UK inflation inspired concerns that the more hawkish members of the Monetary Policy Committee (MPC) might not stick to their guns and vote for higher borrowing costs in the next BoE gathering, contributing to the pound’s decline to an 8-month low against the euro.

Sterling was able to romp to a 10-month high against the US dollar however, with GBP/USD pushing above $1.32 before the month came to an end.

The pound’s performance against the Australian and New Zealand dollars was far less impressive however as both antipodean currencies rallied in response to falling Federal Reserve interest rate hike expectations.

The August BoE interest rate decision will be a major cause of GBP exchange rate movement over the next few days, with the central bank’s attitude to domestic inflation and borrowing costs having the potential to either bolster or undermine demand for the pound.

If the MPC is split 2-6 (or more) in the vote for whether or not to increase interest rates immediately, the pound could surge.

However, if fewer policymakers support higher borrowing costs this time out we can expect Sterling to spiral to new lows.

Of course, Brexit will also remain a key market mover in August. Positive progress in negotiations would lift GBP while signs of discord or hard Brexit hints would undermine demand for the British currency.
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Currencies Direct

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