Headlines
Pound up on BoE optimism
– Sterling weakens slightly.
GBP/EUR hits fresh 7-yr high
– Greek debt deal details delayed.
‘Cable’ up almost 100 pips
– Fed’s Yellen speech weighs.
Sterling hits 5.5-yr high vs. Canadian Dollar
– Oil back below $50 barrel.
Sterling
The Pound rallied against practically all of the majors yesterday as investors geared up for this morning’s Treasury meeting, which is set to see Bank of England Governor Mark Carney and a number of other policymakers explain the latest BoE quarterly inflation report to a Treasury select committee. The inflation report featured a fairly upbeat assessment of the UK’s growth and inflation outlooks, which led to a surge of BoE rate hike bets and subsequently a sizable increase in demand for Sterling. The hope is that Mr Carney will elucidate on the bank’s sanguine outlook for UK interest rates, so if this morning’s talks provide further evidence to back up the BoE’s prediction that inflation could overshoot the 2.0% target in the next two years if interest rates are not raised, then it is likely to bolster demand for the Pound.
Euro
The Pound to Euro exchange rate ticked higher to a new seven-year peak yesterday as markets continued to fret over the situation in Greece. A preliminary debt deal was announced on Friday but the details, which were expected to be revealed yesterday, still remain a mystery and this weighed on sentiment towards the single currency.
The Euro also lost ground in response to a worse-than-anticipated German business climate IFO result of 106.8 and concerns that this morning’s Eurozone consumer price index result could remain at, or indeed fall below, the current five-year low of -0.6%. In contrast, demand for the Pound was buoyed by hopes of an earlier-than-anticipated BoE rate hike.
US Dollar
The Pound also racked up a healthy set of daily gains against the US Dollar yesterday, rallying by almost 100 pips in response to a soft American housing market result and anxieties over the Federal Reserve’s desire to start raising rates.
Whilst the US existing home sales report showed that housing market activity underperformed the already soft market consensus of -1.8%, instead printing at an abysmal -4.9%, the main reason for the drop in demand for the ‘Greenback’ was a bout of speculation suggesting that Fed Chair Janet Yellen could use this afternoon’s testimony to the Senate as an opportunity to play down rate hike expectations. On Thursday US inflation is tipped to slide from 0.8% to -0.1% and some analysts feel that this sharp deterioration in price pressures could persuade the US central bank to hold back on tightening monetary policy for a little longer.
Canadian Dollar
An uptick in UK rate hike bets and a downtick in crude oil prices helped drive the Pound to Canadian Dollar exchange rate to a fresh six-and-a-half-year high yesterday.
It was the same old story for the ‘Loonie’: depreciation due to downward movements in the value of its most valuable export, as a result of oversupply in the oil industry. The latest flood of crude to hit the oil markets took ‘black gold’ below a significant psychological support level of $50 a barrel and this weakened the appeal of the Canadian currency.
Australian Dollar
A mixture of soft global commodity prices and upbeat expectations regarding monetary policy in Britain helped the Pound sail to an incredible 270 pip gain against the risk-correlated Australian Dollar yesterday. A negative profit report from mining giant BHP Biliton may have weighted Sterling’s sledgehammer as it swung down and claimed a massive set of daily gains over the ‘Aussie’.
New Zealand Dollar
Sterling also registered a superb 250 pip daily gain against the New Zealand Dollar, helped by news that the Reserve Bank of New Zealand reduced its two-year inflation forecast from 2.1% to 1.8%, which many saw as a sign that interest rates could remain static rather than be raised over the next 6-12 months.
Data Released Today
EUR Euro-Zone Consumer Price Index (YoY) (JAN F)
GBP BOE’s Carney, Deputy Governors Speak
EUR ECB President Draghi Speaks in Frankfurt
USD Markit US Services PMI (FEB P)
USD Consumer Confidence (FEB)
USD Fed Chair Yellen Testifies to Senate Bank Panel in Washington
CAD Bank of Canada Governor Poloz Speaks in London, Ontario