Headlines
BoE’s Carney suggests rate hike by end of 2015 –
Boosts Pound Sterling.
Pound hits 7-yr high versus Euro –
ECB’s Draghi says full-steam ahead on QE.
GBP/USD remains above technical support –
Fed & BoE rates could rise in tandem.
GBP/CAD remains at 6.5-yr high on BOC rate cut –
GBP/NZD hits new 5.5-yr high.
Sterling
The Pound remained strong versus most of the majors yesterday, striking a seven-year high against the Euro and remaining at multi-year highs against the ‘Loonie’ and ‘Kiwi’. However, Sterling did soften against the ‘Aussie’ as traders looked to lock in profit following Sterling’s outrageous 200+ pip gains on Wednesday.
There were no fresh British ecostats for traders to digest, however, analysts were pleased to hear Bank of England Governor Mark Carney suggest that policymakers could opt to hike interest rates before the year is out. Carney pointed to above trend growth, strong labour market data and upbeat consumer confidence as reasons to consider a slow and steady rise in UK interest rates.
Meanwhile, Chancellor George Osborne announced that he had secured a legally binding deal with the European Union to ensure that Britain’s share of the €7 billion Greek bridging loan would be fully protected if the Hellenic nation were to default on repayments in the future.
Euro
The Pound jumped to a fresh seven-year high against the Euro yesterday in reaction to European Central Bank President Mario Draghi’s assertion that his large scale quantitative easing scheme would continue at full speed for at least another year to help increase liquidity and improve financial stability in the currency bloc. Draghi commented that he would use ‘all the instruments available’ within his mandate to keep the Eurozone economy running at a steady rate. His dovish remarks sent the single currency spiralling by half a cent to its lowest level since late 2007.
Draghi also dropped his two cents into the Greek debate, stating it was ‘uncontroversial that debt relief is necessary’ but argued it would be difficult to agree on a form of debt relief that is legal within Europe’s institutional framework. The ECB Chief also mentioned that the Hellenic Republic could theoretically benefit from the bank’s QE scheme if the latest austerity measures were successfully implemented over the next few months.
Although Draghi’s view on Greece was slightly more upbeat than other European leaders it was not enough to lift the Euro, especially considering that German finance minister Wolfgang Schaeuble is not dropping his idea of Greece temporarily exiting the currency bloc as a means to reshuffle its debt pile.
Important Eurozone ecostats yesterday included a 0.2% inflation print, the ECB’s decision to leave its benchmark interest rate at 0.05% and the central bank’s choice to leave the deposit rate at -0.2%. But none of these announcements had an impact on the single currency.
US Dollar
The Pound remained above technical support against the US Dollar for the majority of yesterday’s session as the prospect of the Bank of England and the Federal Reserve beginning their respective hiking cycles in tandem became slightly more likely. BoE Governor Carney’s latest monetary policy statements suggest that, unless economic indicators deteriorate over the second half of the year, rates will likely be raised before 2016. Fed Chairwoman Janet Yellen has been saying much the same thing since the start of the year – the only difference is that some traders are still holding out for a rise in Fed rates this September.
Later this afternoon American inflation data is predicted to show that consumer prices ticked higher marginally from 0.0% to 0.1% during June, which, although a positive step, is unlikely to give the ‘Greenback’ a substantial boost.
Canadian Dollar
Sterling retained its 300-pip advance in Wednesday’s session yesterday as rising UK interest rate hike bets supported the world’s oldest currency.
The risk-correlated ‘Loonie’, on the other hand, struggled as investors bludgeoned the currency following the Bank of Canada’s decision to slash interest rates to a five-year low of 0.50%. Without its positive yield differential the ‘Loonie’ looks set to remain at depressed levels against the energised Pound Sterling.
Australian Dollar
Sterling was forced to give back some of its robust gains from earlier in the week against the Australian Dollar yesterday as investors took the opportunity to cash out on profitable gains.
Down under Reserve Bank of Australia policymaker John Edwards cheered the recent deterioration in the ‘Aussie’, suggesting it was starting to have a positive impact on the domestic economy. The sanguine remarks were seen to make the prospect of further RBA rate cuts slightly less likely.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate strengthened by a further 200 pips yesterday to reach a fresh five-and-a-half-year high and mark an extraordinary 1,100 pip appreciation over the past seven days. This makes it an incredibly good time to change Pounds into New Zealand Dollars.
Data Released Today
13:30 CAD Consumer Price Index (YoY) (JUN)
13:30 USD Consumer Price Index (YoY) (JUN)
13:30 USD Real Avg Weekly Earnings (YoY) (JUN)
15:00 USD U. of Michigan Confidence (JUL P)