Headlines
Pound up vs. majors
– UK BRC retail sales rise 1.7% in Feb.
GBP/EUR hits fresh 7-yr high
– ECB begins QE with German bonds.
‘Cable’ up 50 pips
– Profit taking takes Sterling higher.
US labour data weighs on commodity bloc
– Weakens appetite for risk.
Sterling
The Pound performed well across the board yesterday as decent retail sales numbers suggested that the recent slide in consumer prices could be starting to bolster Britons’ spending power.
The British Retail Consortium (BRC)’s retail sales index increased from 1.6% to 1.7% in February; the result was particularly pleasing for Sterling traders because February is often a slow month for retailers. The only UK event to look out for during today’s session is Bank of England Governor Mark Carney’s testimony to the House of Lords, however, the Old Lady’s head honcho is more likely to discuss regulatory matters than monetary policy – and thus his speech is unlikely to have a massive impact on the Pound.
Euro
The Pound to Euro exchange rate rose again yesterday, reaching yet another seven-year high as markets reacted to the European Central Bank’s first bout of quantitative easing, which reportedly saw the ECB purchase a number of German government bonds.
European yields have been shrinking for months in anticipation of the programme and they look set to decline further as the ECB endeavours to buy-up bonds to help reduce borrowing costs, increase liquidity, and spur consumer price inflation.
In addition to the ECB QE news, the single currency also fell folly to a disappointing German trade report, which showed that exports plunged -2.1% month-on-month in January. You’d have thought that the ultra-low Euro exchange rate would have had a positive impact on German exports…not on this occasion.
US Dollar
Following a sharp four-cent weekly decline, including a razor-sharp two-cent decline on Friday alone, Sterling managed to pick up the pieces and rally back against the US Dollar yesterday.
GBP/USD tumbled rapidly on Friday afternoon when sturdy US non-farm numbers bolstered Federal Reserve rate hike expectations. However, investors are wary of significant psychological support at 1.50 and it seems many traders opted to cash-in on last week’s fall rather than risk a technical bounce higher. This bout of profit-taking took ‘Cable’ higher by almost a cent at one point but GBP/USD consolidated its gains and closed for the day up by around 50 pips.
Canadian Dollar
A weaker-than-expected Canadian housing starts report, which showed a 156,300 rise as opposed to forecasts of a 179,000 rise in February, contributed to a dour day for the ‘Loonie’ against the Pound. GBP/CAD grew by around a cent as some speculative traders began to question the efficacy in Bank of Canada Governor Stephen Poloz’ logic that one rate cut would be enough to make up for the 50% slide in crude oil prices that has taken place since last June.
Australian Dollar
Sterling rallied by around 180 pips against the Australian Dollar yesterday as markets continued to pull out of the commodity bloc in anticipation of higher interest rates in the US at some point this yearr. If the Fed does indeed start raising rates this year then risk sentiment is liable to depreciate because higher borrowing costs mean higher risks for investors.
New Zealand Dollar
The New Zealand Dollar followed its Antipodean counterpart, the ‘Aussie’, lower yesterday on fears of a tightening of monetary policy in the US. Domestic data detailed a decent 1.0% rise in retail credit card spending, up from -0.4% previously, but the ecostat was not considered significant enough to have a perceptible impact on the GBP/NZD rate, which strengthened by around 150 pips.
Data Released Today
GBP BOE’s Carney Speaks at House of Lords Committee