Headlines
Pound up vs. majors
– BoE Carney says foolish to loosen policy.
GBP/EUR hits fresh 7-yr high
– ECB QE weighs.
‘Cable’ flat on the day
– Support at 1.50 helping Sterling.
GBP/NZD up 2 cents
– On dairy poison concerns.
Sterling
It was another good day for the Pound yesterday as Bank of England Governor Mark Carney commented that it would be ‘extremely foolish’ to use monetary stimulus to combat the current plummet in consumer prices. The Governor said that inflation was likely to remain close to zero percent over the course of the year, but warned that further easing measures would create unnecessary volatility in the long run. Markets were cheered by Mr Carney’s remark that the next move would be a tightening of policy, however, he did caution that any eventual rate rises would be gradual and slow.
And demand for Sterling should remain sturdy today, if January’s industrial production report shows the anticipated 0.2% rebound from December’s -0.2% contraction.
Euro
Sterling rallied by around 150 pips to strike another new seven-year high against the single currency yesterday as the European Central Bank’s quantitative easing scheme continued to depress Eurozone government debt yields, and therefore constrain demand for the Euro.
Even though the Bank of England is unlikely to start raising rates until the start of 2016, the very fact that it is considering hiking borrowing costs at a time when the ECB is rolling out a flagship €1.1 trillion QE programme means that Sterling currently has the edge over the single currency.
The only relatively important economic reports related to the currency bloc yesterday showed that French industrial production expanded by 0.4% in January, but this positive result was tempered by a surprise -0.7% plunge in Italian industrial output.
US Dollar
The Pound to US Dollar exchange rate remained at a relatively low level yesterday, although markets still appeared unwilling to send ‘Cable’ below key support at 1.50.
Fundamentals – namely the Federal Reserve’s desire to start raising interest rates a full six months ahead of the Bank of England – suggest that GBP/USD could be on the verge of further weakening, however, a significant technical support level at 1.50 could be difficult for the ‘Greenback’ to break through. There is little data of any import on the US economic calendar today, so ‘Cable’ movement is likely to be limited.
Canadian Dollar
The Pound rose by around 60 pips against the Canadian Dollar yesterday following BoE Governor Mark Carney’s remark on the folly of loosening UK monetary policy at this juncture. Although Bank of Canada Governor Stephen Poloz has conveyed a similar message over the past few weeks, analysts are skeptical as to whether the Canadian central banker will be able to resist slashing rates again due to the recent plunge in crude oil prices.
Australian Dollar
The Pound rose by over a cent against the Australian Dollar yesterday as a combination of Fed rate hike fears, poor domestic data and a tumble in the price of copper weighed on the ‘Aussie’.
Data showed that consumer confidence contracted -1.2% in Australia at the start of March, but it was a -1.9% slide in copper (influenced by a sharp -4.8% dip in Chinese producer prices) that most impacted the downtrodden ‘Aussie’.
New Zealand Dollar
The New Zealand Dollar tumbled by over two cents against Sterling yesterday in reaction to news that a rogue group had threatened to contaminate areas of the New Zealand dairy industry with a poison known as ‘1080’ if the government continued to use said poison as a pesticide. The scandal hurt demand for the ‘Kiwi’ because it threatened to tarnish the reputation of the nation’s largest export.
Further NZD losses could take place this evening if Reserve Bank of New Zealand Governor Graeme Wheeler strikes a dovish tone during his policy announcement.
Data Released Today
09:30 GBP Industrial Production (YoY) (JAN)
20:00 NZD Reserve Bank of New Zealand Rate Decision (MAR 12)
20:05 NZD RBNZ Governor Wheeler New Conference