Headlines
BoE minutes on tap –
Policymakers could be split on when to start hiking cycle.
Euro down on ECB Greek liquidity rumour –
Greek PM meets with Gazprom boss.
GBP/USD ticks higher –
Psychological resistance at 1.50 remains.
Pound up vs. ‘Loonie’ –
Canadian trade data disappoints.
Sterling
The Pound fluctuated in reaction to events overseas yesterday as British investors remained on the sidelines ahead of this morning’s minutes report from the Bank of England.
The latest central bank literature is likely to show a divergence of opinions among the nine-person monetary policy committee (MPC), with some members looking past the transitory nature of Britain’s record low 0.0% inflation rate and others concerned that monetary policy should remain loose until consumer prices begin to recover. The recent plunge in oil prices, combined with Sterling’s relative strength against the Euro, has had a significant downward impact on British price pressures but with core CPI also softening there is good reason to suggest that BoE policymakers will not start raising rates until the first quarter of 2016.
Euro
The Pound rallied by around a third of a cent against the Euro yesterday as markets reacted with predictable pessimism to reports in the media suggesting the European Central Bank is considering a plan to reduce its liquidity support to banks in Greece.
The ECB’s emergency liquidity assistance (ELS) programme is currently helping to keep the Hellenic nation afloat but if the flow of money into Greece were to stop, there would be an enhanced risk of Athens defaulting on upcoming debt repayments. The single currency depreciated yesterday to reflect the growing risk of a messy ‘Grexit’ from the Eurozone.
In addition to the ECB rumour, markets were also concerned by Greek Prime Minister Alexis Tsipras’ meeting with Gazprom boss Alexei Miller, which sparked concerns that Syriza could be preparing financial support from Russia in the event of Greece being ejected from the Eurozone.
US Dollar
Sterling rallied by around 60 pips against the US Dollar yesterday as markets continued to flirt with the idea of sending ‘Cable’ back above key psychological resistance at 1.50.
Robust UK economic indicators and a severe downturn in American output scores have helped the Pound recover from a recent five-year low to challenge the key 1.50 mark. However, concerns centring on next month’s British general election have, thus far at least, prevented Sterling from settling above the crucial psychological barrier.
If this morning’s BoE minutes report features a raft of hawkish rhetoric from policymakers then we could see GBP/USD rally again. But it is more likely that the report will be characterised by caution, and this could limit the Pound’s potential to strengthen.
Canadian Dollar
The Pound to Canadian Dollar exchange rate surged higher by around 150 pips yesterday afternoon as traders reacted to a disappointing Canadian wholesale trade report. Statistics Canada reported that trade decreased by -0.4% in February, underwhelming analysts’ forecasts of a +0.5% expansion.
The energy-linked ‘Loonie’ was also hurt news that Saudi Arabia has suspended its military campaign in Yemen, which eased tensions in the Middle East and subsequently took a little bit of the conflict premium out of crude oil.
Australian Dollar
The Australian Dollar remained lower against the Pound yesterday as markets continued to digest Reserve Bank of Australia Chairman Glenn Stevens’ dovish statement. The ‘Aussie’ Governor admitted that further rate reductions had to be on the table, which set off a spree of RBA rate cut bets as investors sought to hedge against a possible loosening of monetary policy over the next few months.
New Zealand Dollar
The New Zealand Dollar approached parity against its Antipodean rival the ‘Aussie’ yesterday but the ‘Kiwi’ Dollar was unable to register any lasting gains against the Pound.
Data Released Today
09:30 GBP Bank of England Minutes Medium
15:00 USD Existing Home Sales (MoM) (MAR) Medium