Headlines
UK exports decline in March
– Pound down vs. majors.
Tsipras meets Merkel in Berlin
– Upbeat press conference, little progress.
GBP/USD remains flat ahead of CPI reports
– UK inflation set to hit 0.1%, US -0.1%.
Canadian Dollar benefits from oil rise
– Softer Dollar boosts crude.
Sterling
Sterling tumbled against most of the majors yesterday in reaction to a disappointing report from the Confederation of British Industry (CBI) indicating that export orders dipped by the most in over two years at the start of March. CBI’s export order index sunk to a two-year low of -26, which brought the headline index down from +10 to 0. The current strength of the Pound against the Euro and the continued weakness of the Eurozone economy in general were blamed for the downbeat score.
Furthermore, sentiment towards Sterling was hurt by the release of a speculative report from economic think tank Open Europe on the potential impact of a British exit from the Eurozone. The worst case scenario would see UK GDP shrink by -2.2% over the next 15 years if Britain was not granted a free trade deal with the EU and did not pursue a free trade agenda with the rest of the world. The best case scenario would see UK GDP increase by 1.6% thanks to a comprehensive EU trade deal, a deregulation of the domestic economy and a flexible agreement with most of the world’s other major markets. The most likely outcome, according to Open Europe, would be a -0.8% permanent drop in economic output if, after a ‘Brexit’, the UK agreed a trade deal with the EU but failed to strike similar deals with the rest of the world.
Euro
The Pound to Euro exchange rate dipped by around -150 pips yesterday as investors hoped that progress could be made between Greece and its creditors.
Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel in Berlin for the first time yesterday to discuss the Hellenic nation’s ‘small cash flow problem’. The pair struck an upbeat tone in their joint press conference but the crux of the matter is that no tangible progress was made. Greece remains in a fiscally precarious position and Germany remains unlikely to offer Greece any olive branches in terms of WWII reparations or additional cash boosts without new economic reforms.
US Dollar
Sterling remained flat against the US Dollar yesterday, just below a key psychological barrier, as investors geared up for today’s inflation reports.
The UK consumer price index is tipped to dip from 0.3% to 0.1% as price pressures slip ever closer to zero. The US CPI is anticipated to remain static at -0.1% which could potentially dampen Federal Reserve rate hike expectations. A stronger-than-expected UK result and/or a weaker US score would likely drive GBP/USD above key resistance. However, a soft UK score and/or a sturdy US result could push ‘Cable’ back down towards multi-year lows.
Canadian Dollar
The Pound lost ground against the Canadian Dollar yesterday thanks to a rare rise in the value of crude oil. Recent speculation that the Federal Reserve may be persuaded to hold off on tightening monetary policy until the third quarter of 2015 has caused the US Dollar to weaken, which, in turn, has helped outweigh the impact of rising supply volumes and driven up the value of Canada’s most lucrative export.
Australian Dollar
The Australian Dollar managed to register a two-cent daily gain against the Pound yesterday as downbeat UK export figures weighed on Sterling and hopes of a delay in the Fed’s rate hiking plans bolstered the appeal of the high-beta ‘Aussie’.
New Zealand Dollar
Sterling also suffered a two-cent decline against the New Zealand Dollar yesterday as Fed rate hike bets benefitted perceived riskier assets. The ‘Kiwi’, with the highest benchmark interest of all the major world currencies – 3.50% – soared to a post-float high against the Australian Dollar and a record high against the Euro.
Data Released Today
09:00 EUR Markit Eurozone Manufacturing PMI (MAR P) Medium
09:30 GBP Consumer Price Index (YoY) (FEB) High
12:30 USD Consumer Price Index (YoY) (FEB) High
13:45 USD Markit US Manufacturing PMI (MAR P) Medium
21:45 NZD Trade Balance (New Zealand dollars) (FEB) Medium