The pound made gains on Wednesday as investors believed the Bank of England would strike a more positive tone in today’s Bank of England policy meeting than has been seen in other major central banks. Confidence in the British economy as well as hints towards more rate hikes have made investors believe that today’s meeting will contrast comments from European Central Bank yesterday, dovish in their expectations.
The pound gained 0.5% against the dollar and 0.4% against the euro. Sterling has lost 5% since early May, primarily over the Conservative leadership contest likely leading to a Prime Minister who favours a hard Brexit. The Conservative Party membership will choose from the final two candidates who will be decided this evening. Some analysts believe this will be a choice between front-runner Boris Johnson and either Jeremy Hunt or Michael Gove.
GBPUSD opened at 1.2563 and made strong gains across the day, closing near a high of 1.2635 but reaching as high as 1.2653 by the late evening. These gains have continued in early trading this morning.
GBPEUR opened at 1.1210 and followed a similar pattern, closing near a high of 1.1266 but then levelling off in the evening.
The dollar fell on Wednesday and riskier assets made gains after the Federal Reserve announced that interest rates would be held steady but indicated that there may be a rate-cut before the end of the year. This comes in response to lower inflation and increased uncertainty. The dollar was down 0.38% against the euro and 0.77% against the pound. The dollar index that measures the greenback against six major rivals was down 0.45%. Later in the day these losses slowed, and some were reversed.
European Central Bank chief Mario Draghi indicated towards more policy easing this week, referring to a need to stimulate the slowing eurozone economy. The ECB’s comments have created a wider discussion about a worldwide trend of central bank stimulus, which helped boost stocks, bonds and commodities. The euro fell slightly but moves were small.
EURUSD opened at 1.1199 and made small gains across the day, reaching a high of 1.1242 shortly after closing
