Headlines
- BoE Gov. slams German surplus – Urges Germany to spend more in Europe.
- Greek markets crumble – ‘Grexit’ fears emerge.
- Fed cautiously upbeat – Positive statement, but no immediate hike on cards.
- GBP/NZD up 3 cents – RBNZ shifts towards rate cuts.
Sterling
There were no significant British data releases for traders to get their teeth into yesterday, so demand for the Pound was largely driven by technical patterns and external factors.
However, Bank of England Governor Mark Carney did give a very interesting speech during the evening in Dublin. It didn’t have a marked impact on the Sterling exchange rate but it was well cooked food-for-thought nonetheless. The BoE head honcho criticised Germany’s reluctance to use its considerable budget surplus to prop-up poorer Eurozone states and concluded that closer fiscal union and a shared burden of debt could help rebalance the currency bloc: ‘for complete solutions to both current and potential future problems, the sharing of fiscal risks is required’.
Although nothing as explicit was mentioned, the remarks could feasibly be interpreted as a show of support for new Greek Prime Minister Alexis Tsipras and his intentions to reduce Greece’s debt pile.
Sterling registered a sturdy half-cent gain against the Euro yesterday, bringing the Pound to Euro exchange rate back closer to the seven-year high that it struck at the beginning of the week.
The motivation behind the move appeared to be safe haven related, with speculative investors pulling large funds out of the Greek stock market due to fears that newly-elected Alexis Tsipras’ hard line stance towards debt renegotiation could get the nation kicked out of the 19-nation bloc. Greek stocks plunged -9% yesterday, the banking index declined over -25% and the yield on 10-year government paper rose to 13.5% – the highest level since 2012.
The single currency could run into more trouble this afternoon if data shows what forecasters expect: that consumer prices fell into negative territory in Germany this month. German CPI is tipped to have dipped from +0.2% to -0.2% in January, a score that has the potential to heap further pressure on the Euro.
The Pound declined by around a third of a cent against the US Dollar yesterday following the Federal Reserve’s latest policy statement, which kept the door open to a rise in interest rates in the near term.
Fed Governor Janet Yellen mentioned that ‘economic activity has been expanding at a solid pace [and] labour market conditions have improved further’, which was interpreted as a hawkish remark. However, Ms. Yellen also said that the world’s most powerful central bank would be waiting for signs that inflation was beginning to recover before initiating its long awaited hiking cycle. The statement was generally seen to have a positive edge, and this was reflected in the surge of demand for the ‘Greenback’ yesterday evening.
Sterling appreciated by a further 100 pips against the Canadian Dollar yesterday to another five-and-a-half-year high, as oil prices resumed their decline following the publication of a report showing that the United States is awash with crude. The ‘black gold’, which is massively significant to the health of the Canadian economy, tumbled -4% when the latest US Energy Information Administration report showed that inventories increased by nine million barrels last week to their highest mark on record. The ‘Loonie’ tracked the value of its most lucrative export lower.
After registering an impressive, and sharp, two-cent gain during the early hours of yesterday morning the ‘Aussie’ Dollar collapsed during the day yesterday. The Australian currency initially rallied in response to a better-than-anticipated core consumer price index result. But when commodity prices started to slide, demand for the Antipodean tender decreased and GBP/AUD clawed back its losses. The ‘Aussie’ was also negatively impacted by the largely upbeat tone in Fed Chairwoman Janet Yellen’s latest policy statement, which could lead to a tightening of monetary policy in the United States sometime in the next six months.
The Pound to New Zealand Dollar exchange rate skyrocketed by around three cents yesterday evening to a new two-and-a-half-month high in response to a decidedly dovish statement from the Reserve Bank of New Zealand. Reflecting the recent plunge in global commodity prices, as well as the new trend of central bank loosening, the RBNZ retracted comments related to rising interest rates and intimated that it could cut rates later on in the year. The ‘Kiwi’ Dollar entered free-fall when the dovish remarks hit the wires.
Data Released Today
11:00 GBP CBI Reported Sales (JAN) 32
13:00 EUR German Consumer Price Index (YoY) (JAN P) -0.1%
13:30 USD Initial Jobless Claims (JAN 24) 300K