Pound Sterling (GBP) Exchange Rate Gains on Euro, US Dollar, Australian Dollar as Minutes show Vote Split

Shortly after the minutes from the latest Bank of England (BoE) policy meeting were published, the Pound Sterling (GBP) exchange rate advanced on the majority of its currency counterparts. The Pound gained by over 0.2% against the Euro, around 0.3% against the US Dollar, more than 1.1% against the Australian Dollar and around -0.9% against the New Zealand Dollar. The British asset benefited as the minutes weren’t as dovish as economists had feared they might be and they showed a continuing divide among policymakers on the subject of interest rate increases.

Before the minutes were published the Pound softened against its peers, but the currency largely recouped its lost ground. The minutes stated; ‘Further increases in earnings growth would be necessary if the projections for outlook and inflation described in the Inflation Report were to be realized. But, given the pace at which spare capacity appeared to have been eroded over the past year and the possibility that productivity growth would remain weak, there was a risk that any remaining slack might soon be exhausted, causing inflationary pressures to build.’

As the threat of disinflation has put downward pressure on the Pound this week, this remark helped to alleviate some concerns and bolstered the British asset. The Pound’s strength against the Euro was aided by the Eurozone’s disappointing Construction Output report while the currency’s advance on higher-risk rivals like the Australian Dollar was underpinned by the risk-off environment created by the current economic and political situation in Japan.

The Pound Sterling to Euro (GBP/EUR) exchange rate managed to rally back above 1.25 over the course of the European session. The Pound Sterling to US Dollar (GBP/USD) exchange rate meanwhile managed to retain gains following the publication of property figures for the US. US Housing Starts were shown to have fallen by -2.8% in October, month-on-month, rather than increasing by the 0.8% anticipated. Meanwhile, US building permits increased by 4.8% instead of the 0.9% forecast. Comments issued by BoE policymaker Minouche Shafik could further influence GBP/USD trading today, although investors will also be looking ahead to the publication of minutes from the latest Federal Open Market (FOMC) committee meeting. The GBP/USD pairing could trim today’s gains if the minutes are hawkish in tone and provide some guidance on the subject of interest rate increases.