GBP spikes higher and USD strengthens too

GBP has spiked up, following higher than expected UK inflation data and a markedly more hawkish-sounding Bank of England MPC.

The week's most remarkable development in the foreign exchange markets was the upwards spike of the GBP following high consumer price inflation in August and then more hawkish than expected wording in the minutes from the Bank of England’s Monetary Policy Committee (MPC) on Thursday.

 

As a result, “Cable” (GBP/USD) jumped from 1.32 to well above 1.33 between September 11 and September 14, as expectations for an interest rate hike by the Bank of England were brought forward.
 

“Against the EUR, the GBP has risen by 2.4% in the same period, and by 4.2% since mid-August, reaching the level of GBP/EUR 1.12.”

 

The USD has recovered some of its previous strength as well, partly thanks to an interim agreement on raising the US debt ceiling to allow the government to function until December, when a new agreement on the debt ceiling will have to be found.

Additionally, better than expected initial jobless claims and slightly higher than expected (although still low) inflation numbers published on September 14 put some confidence back into the US economy and made a Fed rate hike in December look slightly more likely.

 

As a consequence, the EUR/USD exchange rate has fallen from above 1.20 on September 8 to about 1.18 on September 14.

 

The CHF has kept its recent level of about 1.14 against the EUR after the SNB's marginally increased inflation forecast for Switzerland, published on September 15.


GBP vs. USD and EUR

Source: Bloomberg Finance L P, Deutsche Bank Wealth Management. Data as of September 14, 2017.

Stéphane Junod
CIO EMEA
Source: CIO Bulletin, September 15, 2017