Headlines
BoE set to hold rates for 73rd time
– UK trade balance on tap.
Tsipras’ meeting with Putin hurts Euro
– GBP/EUR up 120 pips.
FOMC minutes boost Dollar
– ‘Cable’ stumbles ahead of resistance.
Canadian Dollar down on oil
– US inventories soar.
Sterling
Without any fresh domestic data to contend with, the Pound was left to fluctuate in reaction to developments in foreign markets. Later today the Bank of England is set to hold its benchmark interest rate at 0.50% for the 73rd month in a row, which is unlikely to have a perceptible impact on the Sterling exchange rate but is remarkable in that it will represent the first time in decades that a government has enjoyed static borrowing costs for its entire term.
A separate report is predicted to show that the UK trade balance widened from -£8.4 billion to -£9.0 billion in February, which has the potential to weigh on demand for the Pound because the Bank of England recently flagged that the swelling budget deficit was a key concern.
Euro
Sterling rallied by around 120 pips against the Euro yesterday as investors fretted over the possibility that Greece may be preparing for an untimely exit from the currency bloc. Traders and leaders alike were puzzled by Greek Prime Minister Alexis Tsipras’ decision to fly to Moscow to speak with Russian President Vladimir Putin. Tsipras maintained that his government has the right to pursue ‘nuanced foreign policy’ whilst respecting its commitments to international organisations such as the European Union. And Putin said that he sees potential for further Russian investment in Greece.
The meeting, which came just a handful of days before the Orthodox Easter Bank Holiday in Greece, raised concerns that Tsipras could be extending an olive branch to Russia in an attempt to procure alternative economic funding if the Hellenic nation’s relationship with Europe deteriorates. It’s difficult to foresee a ‘Grexit’ over the weekend, but it was the fear of this nightmare scenario that sent the single currency lower against the Pound yesterday.
US Dollar
Sterling appreciated by over 150 pips against the US Dollar yesterday morning as traders geared themselves up for a dovish minutes report from the Federal Reserve. However, technical barriers ahead of a key resistance level proved too strong for the Pound and GBP/USD lost momentum. ‘Cable’ returned to its opening levels during the evening when the FOMC minutes report was released.
The central bank literature confirmed that interest rates will most likely rise at some point in 2015, with some policymakers gunning for a rate hike as early as June and others happy to wait for additional improvements in inflation and the labour market. Despite protestations from the most dovish of Fed officials, the report was generally seen as having a hawkish tint and this bolstered the appeal of the ‘Greenback’. It is important to note that the minutes relate to a meeting that took place on March 18th, before last Friday’s dire US non-farm payrolls report was released.
Canadian Dollar
The Canadian Dollar plunged by around -130 pips against the Pound yesterday afternoon as the value of crude oil – Canada’s most lucrative export – decreased again. The latest driver in the falling oil price saga was a report showing that US crude stockpiles recently jumped higher by the most in a single week since 2001. This is indicative of oversupply in the market, which in turn suggests that prices will remain depressed.
Australian Dollar
The Pound to Australian Dollar exchange rate fluctuated with no real directional bias yesterday – the FOMC minutes were not considered sufficiently hawkish enough to negatively impact the ‘Aussie’. However, the Australian Dollar did manage to register a half-cent gain against Sterling earlier this morning in reaction to an encouraging uptick in domestic construction output: the AiG PMI jumped from 43.9 to 50.1 in March.
New Zealand Dollar
It was a rather dull day for GBP/NZD on the currency market yesterday; neither currency had reason to strengthen nor weaken and consequently neither currency did either of those things. If the Federal Reserve’s minutes report had carried a stronger message then we could have seen enhanced volatility but things didn’t pan out that way.
Data Released Today
09:30 GBP Visible Trade Balance (Pounds) (FEB) Medium
12:00 GBP Bank of England Rate Decision (APR 9) High
13:30 CAD New Housing Price Index (YoY) (FEB) Medium
13:30 USD Initial Jobless Claims (APR 4) Medium