Our systems have detected that you are using a computer with an IP address located in the USA.
If you are currently not located in the USA, please click “Continue” in order to access our Website.
Local restrictions - provision of cross-border services
Swissquote Bank Ltd (“Swissquote”) is a bank licensed in Switzerland under the supervision of the Swiss Financial Market Supervisory Authority (FINMA). Swissquote is not authorized as a bank or broker by any US authority (such as the CFTC or SEC) neither is it authorized to disseminate offering and solicitation materials for offshore sales of securities and investment services, to make financial promotion or conduct investment or banking activity in the USA whatsoever.
This website may however contain information about services and products that may be considered by US authorities as an invitation or inducement to engage in investment activity having an effect in the USA.
By clicking “Continue”, you confirm that you have read and understood this legal information and that you access the website on your own initiative and without any solicitation from Swissquote.
GBP rises ahead of BoE meeting
Is the dollar sell-off over?
This is no news that the US dollar has had a tough year so far but the question is whether further USD weakness is sustainable. On a trade weighted basis, the greenback fell more than 8.5% since the beginning of the year. The sharp appreciation of the single currency is responsible for most of move as it rose more than 12.60% against the USD, followed by the Swedish krona and the Australian dollar, up 12.25% and 9.90% respectively.
Nevertheless, since the beginning of the week, it seems that downside pressures on the USD are fading away as market participants reassess the dollar outlook. Given the rapid pace and the scale of the greenback debasement, we think it is time to consider the possibility of a bounce back. Not because the US fundamentals have changed drastically recently - even though yesterday dovish comments from Mester and Williams do not support my point - but because the market has a strong bearish bias. It is true that the latest US economic data does not allow for excess optimism; however the situation abroad is not much brighter.
More specifically, there are some interest opportunities, especially in the commodity currency complex. Both the Aussie and the Kiwi have benefited from the flight to higher yielding currencies as investors discounted the Fed’s hawkish bias. In addition, recently released economic data suggests that both of those countries are suffering from temporary setbacks, meaning that a downward adjustment of their respective currency is more than likely.
Window of opportunity for the Bank of England
Early this afternoon, the BoE will announce its key rate that should remain unchanged at 0.25%. Markets estimate that rates should only increase by early 2018.
For the time being, the British Central Bank is largely enjoying a weak pound in the wake of the Brexit vote. The economic collapse predicted after the referendum has not materialised and fundamental data are correct. Inflation is at 2.6%, growth at 1.7% (annualized) and unemployment rate keeps on declining, now at 4.5%.
The pound is getting stronger against the greenback but is weakening against the single currency. Indeed, Trump was unable to deliver what he promised and the Fed fears to increase rates. On the ECB side, markets estimate that the monetary policy divergence between the US and the Eurozone should now narrow down and that European policymakers should increase rates in the late part of this year. Current pounds levels are still providing the BoE with a window of opportunity to raise rates and drive growth.
In addition, the BoE is still targeting £435 billion in its asset purchase program and it may soon be the time to reduce the flow of liquidity the BoE injects in the market. By now, the amount injected has been of £375 billion – around 25% of the annual UK GDP -. Current economic development may definitely be a great moment for the British institution to act towards a monetary policy normalization.