Headlines
- BoE quarterly inflation report speculation hurts Pound – Investors see dovish rate outlook.
‘Grexit’ fears drive Euro lower – EU reluctant to cave on debt negotiation.
GBP/USD grapples with resistance – Fed more hawkish than BoE.
Canadian unemployment declines – But CAD fails to hold onto gains.
Sterling
The Pound lost ground to most of its major currency peers yesterday in response to speculation among traders that Thursday’s quarterly inflation report from the Bank of England could see the UK central bank push back its rate hike projections. The recent collapse in the value of crude oil means that consumer prices in Britain are currently rising at the slowest rate for 14 years and this is likely to perturb BoE officials from tightening monetary policy at this juncture. Indeed, Ian McCafferty and Martine Weale, two policymakers who voted for rate hikes in each of the previous five months’ meetings recently retracted their hawkish bids and voted to leave rates unchanged at 0.50%.
Later this morning data is forecast to show that industrial production contracted -0.1% in December, down from +0.1% in November. This is liable to weaken demand for Sterling.
Euro
The Pound to Euro exchange rate came within 10 pips of reaching a fresh seven-year high yesterday, as investors continued to fret over the ever-growing possibility that Greece could be ejected from the Eurozone.
New Greek PM Alexis Tsipras has insisted that his country will not stick to the ‘cruel’ terms of the bailout programme that was agreed by his predecessors. The Syriza leader has demanded WWII reparations from Germany and his finance minister Yanis Varoufakis has stated that the new government would like to amend 30% of the current bailout programme in order to build towards a sustainable future for the heavily indebted southern Eurozone nation.
The problem is that the European Union, the European Central Bank and the European Commission – the ‘troika’ of creditors that Syriza holds with such disdain – are not willing to enter negotiations with Greece over its colossal debt pile. And as things stand, with both sides unwilling to back down, there is a growing feeling in the marketplace that the Hellenic nation will default on its debt and consequently be kicked out of the 19-nation bloc at some point in the foreseeable future. And it is this dreaded ‘Grexit’ scenario that is weighing on the single currency.
The Pound grappled with technical resistance against the US Dollar yesterday, as traders struggled to decide whether last Friday’s robust US non-farm payrolls report was enough to warrant a resumption of the downward trend that sent GBP/USD lower by around ten cents over the past six months.
With wages beginning to grow fairly rapidly in America and job creation also ticking along nicely, there is growing optimism in the States that the Federal Reserve will look to start raising interest rates during the first half of 2015. And if Thursday’s BoE quarterly inflation report signals that rates are to remain low for longer in Britain then there is a good chance that Sterling could begin sliding towards key psychological resistance at 1.50 against the ‘Greenback’.
The Canadian Dollar registered a 1.3 cent gain against the Pound yesterday, as Canadian housing data impressed and crude oil prices surged. The Canada Mortgage and Housing Corporation reported that housing starts increased from 179,637 to 187,276 in January, which gave traders a little bit of reason to believe that the Bank of Canada could look to leave interest rates unchanged in the near term, following last month’s surprise reduction. The ‘Loonie’ also garnered support related to the latest rise in crude oil, which brought the price of a barrel of the ‘black gold’ to $53.
Profit-taking stances and a slightly more sanguine environment for commodities sent the Australian Dollar higher by around two cents against the Pound yesterday. Copper and crude oil both moderated, which paused downward pressure on the ‘Aussie’ and caused some traders to lock-in profits from the latest five-year high spike in GBP/AUD.
The New Zealand Dollar also benefitted from profit-taking at the beginning of the week, appreciating by just under two cents against the Pound yesterday despite there not being any clear bullish incentive behind the move.
Data Released Today
GBP Industrial Production (MoM) (DEC)
GBP NIESR Gross Domestic Product Estimate (JAN)
USD Wholesale Inventories (DEC)
NZD Card Spending Retail (MoM) (JAN)