Turbulent Oil Prices Are Forecast to Drive British Pound Sterling (GBP) Currency Predictions

January 26, 2016 - Written by Toni Johnson

STORY LINK Turbulent Oil Prices Are Forecast to Drive British Pound Sterling (GBP) Currency Predictions

Crude Oil Price Fluctuations causing Significant Currency Volatility This Week

Volatile movement in the global currency markets during recent weeks has made it hard for investors to get a clear view of exactly what’s going on. Read our leading analyst cut to the chase below, as he takes a look at the leading indicators which FX insiders are using to formulate their forecasts on the future direction for the world’s major currency pairs …

The main driver for price action in the currency markets during recent weeks has been the violent shift in the cost of a barrel of crude oil. Confusingly, there are two distinct benchmark measures of the current value of ‘Black Gold’ – Stateside, they look at the West Texas Intermediate (WTI) grade and the remainder of the world tends to use Brent Crude as its headline indicator.

Brent slumped to its lowest level in fourteen years last Wednesday, with the price of a barrel of the North Sea’s finest plunging briefly below the $28 mark.

Canadian Dollar and Norwegian Krone Exchange Rates Struggle on Tanking Crude Prices

The downside shift for oil took the Canadian Dollar (currency : CAD) and the Norwegian Krone (currency : NOK) with it, as both country's economies are heavily reliant upon oil.

A less obvious loser from the drop in oil was the Pound Sterling (currency : GBP) which seems to have become a risk-sensitive asset of late; as recently as last Summer, following heavy hints from Bank of England (BoE) Governor Mark Carney, analysts were forecasting a UK interest rate hike for December 2015.

The sharp shift lower for oil prices, and the attendant slump in domestic inflation expectations, which followed, has led those same analysts to push back their predictions for the next tightening of policy from the BoE to February 2017. Sterling has struggled as a consequence.

Oil Price Falls Predicted to Delay Federal Reserve Cash Rate Hike

Meanwhile, the US Dollar (currency : USD) has not been immune to the fall in oil.

The US Federal Reserve broke ranks and became the first major global central bank to increase interest rates since the 2007-09 global financial crisis last month. At this time, analysts were anticipating another Fed rate hike for March, with the Federal Reserve suggesting four more hikes during 2016.

However, futures markets now expect the Fed to wait until its November 2nd to make its next increase. This change in expectations has halted the Dollar’s uptrend against Sterling and analysts now forecast that the GBP USD exchange rate may now trade sideways in the 1.4000 – 1.4400 channel in the short to medium term.

The FOMC meets later this week to deliver its latest interest rate announcement. No change in borrowing costs has been forecast.

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TAGS: American Dollar Forecasts Canadian Dollar Forecasts Norwegian Krone| Forecasts