Headlines
- BoE inflation report due this morning – Sterling poised for big moves.
Greek conflict with creditors continues – Eurogroup meeting inconclusive.
GBP/USD remains range bound – Markets await BoE announcement today.
Canadian Dollar down on BoC comments – GBP/CAD at 6-yr high.
Sterling
This morning’s Bank of England quarterly inflation report is hotting up to be the most important announcement so far this year for Sterling. With global oil prices currently at less than half what they were last June, the BoE is almost definitely going to reduce its inflation expectations. But the real question on traders’ lips is how Governor Mark Carney is going to spin the slide in oil prices. Is he going to focus on the disinflationary impact and play down the chances of a rate hike in 2015? Or is he going to highlight the positive impact that cheap fuel could have on British consumer spending and emphasise that consumer prices are likely to rise when the temporary impact of cheap oil wears off?
Both options are possible but, with the general election coming up in May, there is probably slightly more chance of Mr Carney striking a dovish stance and that could drive Sterling a little bit lower across the board.
The Pound to Euro exchange rate touched a fresh seven-year peak yesterday morning in response to fears that Greece will not be able to agree a deal with its creditors.
After a gruelling set of talks that went on late into the night, Eurozone finance ministers came to the disappointing conclusion that no progress could be made yesterday. The extent to which leaders disagreed over the path forward for Greece was best illustrated by the Eurogroup’s inability to even release a statement following the talks. The can has been kicked down the road until Monday, meaning that ‘Grexit’ fears are liable to weigh over the single currency until then.
The Pound to US Dollar exchange rate remained range bound yesterday as a lack of significant new data left the two currencies to fluctuate between technical support and technical resistance. GBP/USD rose by just over half a cent during the morning but declined by the same amount during the afternoon.
Today’s session should prove more decisive however and it is entirely likely that we could see some big moves in ‘Cable’ following the Bank of England’s statement on growth and inflation expectations. Sterling looks set to tick lower but there is still a realistic chance that the UK central bank will leave the door open to a rise in rates later this year, which would no doubt bolster demand for the Pound.
Canadian Dollar
The Bank of Canada’s dovish monetary policy outlook helped the Pound rally to a new six-year high against the Canadian Dollar yesterday. The commodity-correlated ‘Loonie’ was also hurt by the latest dip in demand for crude oil, which saw ‘black gold’ fall back below $50 a barrel, thus reversing the gains that it made at the start of the week. With oil prices remaining close to five-year lows and Canadian policymakers keen to talk down the value of the domestic currency, there is every chance that GBP/CAD could retain its current strength in the medium term.
On the other hand, the multi-year high GBP/CAD rate means that there is a long way for Sterling to fall if this morning’s BoE report disappoints.
Sterling jumped to a new five-and-a-half-year high against the Australian Dollar earlier this morning when data showed that Australia’s unemployment rate unexpectedly rose by 0.3% from 6.1% to 6.4%. The shocking result led to an instant 150 pip gain for the Pound, which had already registered a sturdy 120 pip gain in the run-up to the report. The dismal labour market figures caused many investors to bet that the Reserve Bank of Australia will look to drive the benchmark interest rate down to a new all-time low at some point in the near future, and this significantly weakened demand for the ‘Aussie’.
Sterling rose by around a cent against the New Zealand Dollar during the London session yesterday as markets remained cautious in relation to the possibility of a ‘Grexit’ scenario. The underlying threat of an untimely breakup of the Eurozone damaged global risk sentiment and, subsequently, this led to declines in demand for the risk-sensitive ‘Kiwi’ Dollar.
Data Released Today
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (DEC)
10:30 GBP BOE’s Mark Carney Holds a Press Conference
10:30 GBP Bank of England Inflation Report
13:30 USD Advance Retail Sales (MoM) (DEC)
13:30 CAD New Housing Price Index (YoY) (JAN)
13:30 USD Initial Jobless Claims (FEB 7)