Headlines
Pound down vs. majors
– BoE’s Carney suggests rates could remain low for longer.
GBP/EUR slides over a cent
– Profit-taking from 7-yr high.
‘Cable’ sinks to 20-month low
– Breaks below 1.50.
Sterling cedes 300 pips to AUD & NZD
– Down by over 100 pips vs. most majors.
Sterling
A UK trade report released yesterday showed that the British deficit narrowed from -£9.9 billion to -£8.4 billion in January, beating expectations of -£9.6 billion. However, it was the recent plunge in oil prices, rather than an uptick in demand for British exports, that brought the deficit down and this prevented the Pound from garnering any additional support following the release.
And sentiment towards Sterling decreased during the afternoon when Bank of England Governor Mark Carney was seen to suggest that rates could remain low for longer. Mr Carney reminded markets of the strength of the UK economy at this moment in time, stated that deflation was unlikely to set in, but cautioned that the recent appreciation in Sterling combined with the endemic of soft consumer prices around the world could continue to depress the UK CPI.
The Pound weakened by over a cent against all of the majors, bar the US Dollar, in reaction to the remarks as investors pushed back their expectations for monetary tightening in the UK.
Euro
Sterling declined by over a cent against the Euro yesterday as profit-taking kicked in following the spurt of fresh seven-year peaks over the past few weeks.
In Europe it was reported that German consumer prices remained just above zero during February, at 0.1%, and that Eurozone industrial production ticked higher by 1.2% on an annual basis. The dataset had only a minimal impact on GBP/EUR because investors are fairly certain that the European Central Bank is not going to modify its monetary stimulus programme for quite some time, so as to allow policymakers to accurately analyse the effects of the recently launched government bond-buying scheme.
A war of words between Greece and Germany rumbled on yesterday, with Greek officials launching an official complaint against German finance minister Wolfgang Schauble for allegedly calling his Greek counterpart, Yannis Varoufakis, ‘foolishly naive’. The Germans have dismissed the claims, just as they have dismissed calls to pay war reparations to the Hellenic nation. Although the fractious relationship between the currency bloc’s richest member state and one of its poorest nations is worrying for future stability in the region, the latest jibing did not have a negative impact on the single currency.
US Dollar
Pushed lower by BoE Governor Carney’s cautious comments, the Pound declined by a further half-cent to a fresh 20-month low against the ‘Greenback’ yesterday in a move that seemingly confirms that further losses could be in store for GBP/USD in the near term.
With significant support at 1.50 shattered, there looks to be swelling downward pressure on ‘Cable’ that could send Sterling spiralling lower over the next few weeks. With the Federal Reserve currently expected to start raising rates around the mid-point of this year and the BoE not likely to start tightening policy until at least the first quarter of next year, the potential exists for another period of contraction in GBP/USD.
Canadian Dollar
Dampened BoE rate hike expectations took the Pound to Canadian Dollar exchange rate down by over 150 pips to a new monthly low yesterday. However, there is a possibility that Sterling could recover later this afternoon as the Canadian unemployment rate is tipped to rise from 6.6% to 6.7%.
The jury is still out on the Canadian Dollar because on the one hand you have the prospect of a likely recovery in crude oil at some point over the next two years, but on the other you have the possibility that the recent plunge in prices could require additional monetary stimulus from the Bank of Canada.
Australian Dollar
The Pound plummeted by 300 pips against the Australian Dollar yesterday as investors reacted to a surprise downward movement in the headline Australian unemployment rate.
Confounding expectations for a hold at 6.4%, the Australian jobless rate dipped to 6.3% in February, which stoked demand for the ‘Aussie’ at a time when the Pound was feeling the strain from comments issued by the head of the Bank of England.
New Zealand Dollar
The Pound also lost out on around 300 pips to the New Zealand Dollar as investors continued to buy into the ‘Kiwi’ following a speech from Reserve Bank of New Zealand Governor Graeme Wheeler suggesting that rates would not be cut in the next two years.
Data Released Today
GBP Construction Output s.a. (YoY) (JAN)
CAD Unemployment Rate (FEB)
CAD Net Change in Employment (FEB)
USD U. of Michigan Confidence (MAR P)