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Global central bank policy decisions will continue to have a very important impact on global exchange rates.
The focus on Thursday will be the Bank of England (BoE) policy decision. Investment banks are split on the policy decision but it will not be a surprise if there is an increase in base rates to 0.25% from record lows of 0.10%.
The overall statement from the bank and vote split will also be key elements while Governor Bailey will hold a press conference. Markets expect a split vote within the committee.
Given market expectations of a series of rate increases over the next year, the consensus within banks is that there will need to be a notably hawkish stance from the BoE to support Sterling against other major currencies.
In this context, markets are not expecting significant Pound gains, although volatility will inevitably be very high following the decision.
There were further dovish comments from ECB officials on Wednesday with bank President Lagarde and senior official Villeroy stating that the conditions for an interest rate increase are unlikely to be in place next year.
Expectations of very low yields continued to limit Euro support, although the main focus was on Thursday’s BoE policy decision with position adjustment into the decision.
Brexit developments will also be monitored closely with UK and French officials due to meet on Thursday.
The US Federal Reserve announced that it would start to scale back asset purchases with a reduction to $105bn from $120bn this month and further steady reductions with buying set to be completed around mid-2022.
This move was in line with market expectations while the statement was slightly more optimistic. Fed Chair Powell remained confident that higher inflation would prove transitory, although he did admit there was increased uncertainty.
The relatively dovish stance initially undermined the dollar, but it recovered on Thursday with rates still seen increasing next year.
The US ADP employment data and ISM business confidence data were stronger than expected which also provided underlying dollar support.
The Pound to Dollar (GBP/USD) exchange rate was unable to break above 1.3700 after the Fed statement and settled around 1.3660 on Thursday.
Australia reported an AUD12.2bn trade surplus for September from AUD14.7bn the previous month and in line with expectations.
Global risk appetite held firm which supported the Australian currency, but iron ore prices remained on the defensive and there were also reservations surrounding the Chinese outlook.
Markets continued to assess central bank policies and potential yields.
The Pound to Australian dollar (GBP/AUD) exchange rate strengthened to a high of 1.8420 before sharp retreat to 1.8320 and settled around 1.8360 with further volatile trading inevitable.
There were no major Canadian developments on Wednesday with global trends dominating currency moves. The Canadian currency was undermined by a retreat in oil prices during the day with the WTI benchmark dipping to test support below $80.0 p/b.
Overall Canadian currency sentiment held firm given expectations that the Bank of Canada will raise interest rates next year.
From highs around 1.6990, the Pound to Canadian dollar (GBP/CAD) exchange rate retreated to 1.6935 on Thursday.
The New Zealand ANZ commodity price index increased 2.1% for October to a fresh record high after a 1.5% increase the previous month which will underpin export earnings.
There were further expectations that the Reserve Bank of New Zealand will continue to increase interest rates with consensus forecasts of another hike at this month’s policy meeting.
In relative terms, expectations of Federal Reserve patience also provided an element of support to the New Zealand currency.
The Pound to New Zealand dollar (GBP/NZD) exchange rate consolidated around 1.19120, close to the middle of the 1.9080-1.9160 range seen during the past 24 hours.