Headlines
- UK CPI set to hit 0.7% – Inflation report on tap.
- ECB QE & Greek elections weigh on Euro – GBP/EUR up slightly.
- Fed’s Lockhart sees mid-year rate hike – ‘US economy hitting on all cylinders’.
- Sliding commodity prices hurt CAD, AUD & NZD – Sterling registers gains.
Sterling
The Pound recovered ground against some of its major currency peers yesterday as speculative traders reacted to the latest collapse in global commodity prices.
The main event to look out for during today’s session is this morning’s UK CPI report. The sharp selloff in crude oil over the past six months means that the headline UK inflation rate is expected to fall from 1.0% to 0.7%. Although this will prompt Governor Carney to send a letter of explanation to Chancellor Osborne, the fact that monetary policy was kept extremely accommodative during times of high oil prices suggests that the Bank of England may well choose to raise rates at some point this year, even if low oil prices mean that inflationary pressures remain soft.
Euro
The Pound to Euro exchange rate registered a mild 0.2 cent daily gain yesterday as demand for the single currency remained constrained by fears that the European Central Bank will embark on a full-scale sovereign bond-buying scheme next week. The Euro also suffered at the hands of jittery traders in relation to the prospect of the left-wing SYRIZA bloc claiming victory at the Greek general elections on January 25th. A victory for Alexis Tsipras and his populist party would shroud Greece’s Eurozone membership in doubt and could potentially lead to a sharp depreciation in the single currency.
There are no key ecostats due for release in the 18-nation bloc today, meaning that most speculative GBP/EUR trading is likely to occur around the time of the British inflation report.
US Dollar
Sterling lost ground against the ‘Greenback’ during the London session, but fought back during the New York session yesterday even though a member of the Federal Reserve’s rate-setting team said that US interest rates should start to rise by the middle of the year. Federal Reserve Bank of Atlanta President Dennis Lockhart stated that the US economy is ‘hitting on all cylinders’ and suggested that the central bank could start tightening monetary policy even if inflation fails to meet the Fed’s target rate of 2.0%. The remarks were generally viewed as supportive of future strength in the US Dollar, although they did not lead to many steep gains for the ‘Greenback’ upon release.
The Pound rallied by around two cents against the Canadian Dollar yesterday as both copper and crude oil plunged to fresh five-year lows. The price of crude oil – Canada’s most lucrative export – suffered another -3% decline in reaction to a detailed report from Goldman Sachs suggesting that the ‘black gold’ will teeter around the $50 per barrel mark for the majority of the year.
Fed policymaker Dennis Lockhart’s comments on interest rates, which caused many investors to shift into risk-off mode, accelerated Sterling’s gains against the ‘Loonie’ yesterday.
The Pound appreciated by around a cent against the high-risk Australian Dollar yesterday as a backdrop of falling commodity prices and rising borrowing costs – in the US at least – drove investors out of the ‘Aussie’ Dollar. The next key Australian economic report is due for release on Thursday morning and is tipped to show that employment growth slowed from 42,700 to just 5,000 in December. The figures are unlikely to have a positive impact on demand for the Antipodean currency.
Sterling surged higher by around two cents against the New Zealand Dollar yesterday as another reduction in global dairy prices brought the price of milk down to less than that of bottled water. The risk-sensitive ‘Kiwi’ Dollar was also susceptible to selling pressure following comments from the Fed’s the Lockhart, which were seen to increase the probability of a rise in US interest rates in the first half of the year.
Data Released Today
09:30 GBP Consumer Price Index (YoY) (DEC) 0.7%
09:30 GBP Core Consumer Price Index (YoY) (DEC) 1.3%
19:00 USD Monthly Budget Statement (DEC) $3.0B
21:45 NZD Card Spending Retail (MoM) (DEC) 0.1%