Headlines
BoE’s Carney suggests rate hike in 12 months –
Plays down foreign worker productivity speculation.
ECB’s Draghi says QE here to stay –
Greek fin min insists Greece will pay creditors.
‘Cable’ hits fresh 5-month high –
US industrial production on tap.
Volatility in Sterling commodity-currency pairs –
Multiple swings north of 100 pips.
Sterling
Despite tabloid headlines yesterday suggesting that Bank of England Governor Mark Carney had made an ‘explosive intervention’ regarding the number of foreign workers in the UK, the BoE chief, speaking on a Radio Four interview, asserted ‘the real story is that British people want to work more’. When asked if foreign workers were to blame for Britain’s poor post-crisis productivity levels Carney curtly replied ‘I’d really dampen that down’. The Governor went on to suggest, vaguely, that rates could be higher than they are now in a year’s time, whilst also urging the Conservative government to conduct its EU referendum ‘as soon as necessary’ to prevent the domestic economy suffering from uncertainty.
Traders were generally unmoved by the interview because, apart from the EU referendum remarks, it didn’t really add anything new to the table. And when compared to drastic moves like the Swiss National Bank’s decision to peg the Swiss Franc to the Euro in 2011, the Governor’s verdict that people working longer hours, older people working later in life and a larger population, partly due to net immigration, had constrained wages, seemed rather more like a sober analysis of a number of economic and social factors than an ‘explosive intervention’.
Euro
Sterling managed to retain a fairly robust rate against the Euro yesterday as markets reacted to comments from ECB President Mario Draghi insisting that the bank’s quantitative easing programme will not be cut short. Draghi noted that, following the crisis, ‘firms and households are very hesitant to take on economic risk’ and therefore policymakers need to keep accommodative monetary policy in place until a ‘sustained’ recovery is witnessed in the currency bloc.
Another high profile economic figure was forced to respond to media misrepresentation yesterday. This time it was Greek finance minister Yanis Varoufakis, who, after suggesting that Greece SHOULD be able to swap some of its debt owed to the European Central Bank for growth-linked bonds, was quoted as announcing that the Hellenic nation WILL NOT be paying the ECB back the money it owes in July and August. The outspoken Varoufakis’ response – an official statement from the Hellenic Republic Ministry of Finance – was characteristically direct but it essentially served the same purpose as Carney’s curt remarks on the radio.
US Dollar
Sterling touched a fresh five-month high against the US Dollar yesterday as traders continued to drive ‘Cable’ higher in the wake of last week’s UK general election and the recent onslaught of worse-than-expected US ecostats.
However, GBP/USD levelled off by the end of the day as investors used an encouraging US jobless claims number – 264,000 compared to forecasts of 273,000 – as an opportunity to take profit on Sterling’s latest gains.
Today’s US industrial production data is expected to show that output remained stagnant at 0.0% in April, which could easily weigh on demand for the ‘Greenback’.
Canadian Dollar
A below forecast Canadian new house price index print of 1.2%, down from 1.4% previously, contributed to the Canadian Dollar’s -120 pip depreciation against the Pound yesterday. However, it appears that positive UK economic sentiment also played a part as Sterling struck a fresh 50-day high against the ‘Loonie’. Against the US Dollar, CAD actually traded at its highest level since January yesterday.
Sterling rallied by around 150 pips yesterday against the Australian Dollar, going some of the way to reverse Wednesday’s -250 pip decline. GBP/AUD is currently sitting in the middle of a 10-cent range which is expected to bookmark the currency pair until the Federal Reserve starts hiking interest rates, most likely in September or the fourth quarter of this year.
New Zealand Dollar
Despite a decent domestic retail sales score of 2.7%, which massively outshone predictions of 1.6%, the New Zealand Dollar declined by around a cent against the Pound yesterday. And with GBP/NZD having fluctuated by as much as six cents in the last three days alone it is highly probable that volatility will ensue in the pair over the next few days.
Data Released Today
09:30 GBP Construction Output s.a. (YoY) (MAR)
14:15 USD Industrial Production (APR)
14:15 USD Manufacturing (SIC) Production (APR)
15:00 USD U. of Michigan Confidence (MAY P)