Headlines
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BoE’s Shafik talks down rate hike
– UK CPI on tap.
•
GBP/EUR slides to 50-day low
– Eurozone industrial production impresses.
•
‘Cable’ falls from three-week high
– Traders await Fed decision and rhetoric.
•
Commodity currencies survive further declines
– Investors soften 2016 Fed rate hike bets.
Sterling
The Pound softened yesterday in reaction to dovish comments from Bank of England Deputy Governor Minouche Shafik. Mirroring remarks made in last week’s BoE policy statement, Shafik stressed that she would not be voting for higher rates until domestic wage growth improves. Shafik also noted that the continued weakness in commodity markets was weighing on the headline UK inflation rate and that this was detrimental to talk of raising rates.
This morning’s data could give Sterling a leg-up if the consumer price index emerges from negative territory as expected. The consensus is for a rise in inflation from -0.1% to +0.1% but recent declines in commodity prices could impact the CPI figure.
Euro
The Pound to Euro exchange rate slid by over a cent to strike a 50-day low yesterday afternoon.
The single currency was supported by a surprise 1.9% rise in Eurozone industrial output, which beat forecasts of 1.4% and contained encouraging signs of growth in the consumer durable goods market. The Euro could garner more support during today’s session if the German ZEW economic sentiment index rises from 28.3 to 31.0 as expected.
On the other hand, we could see Sterling rebound if markets are happy with this morning’s UK CPI report.
US Dollar
Sterling fell from a three-week high against the US Dollar yesterday as investors continued to position themselves ahead of Wednesday’s highly anticipated policy decision from the Federal Reserve. Analysts are prepared for a rate hike, the first for nine years, but it appears that Fed President Janet Yellen’s statement could cause more of an impact on foreign exchange markets.
Currently markets are pricing-in 2-4 rate hikes in 2016. But with commodity prices slumping to multi-year lows and emerging market economies beginning to come under fire there is a possibility that Yellen could use the post-decision press conference as a platform to talk down 2016 rate hike bets. If she does we could actually see the Pound rally following a Fed hike.
Conversely, if Yellen strikes a hawkish tone and markets envisage four or more further pieces of monetary tightening next year then we could easily see GBP/USD sink below key psychological support.
US data is tipped to show that consumer prices rose from 0.2% to 0.5% in November and this could bolster demand for the US Dollar during today’s session.
Canadian Dollar
Remarkably, the Canadian Dollar managed to eke out gains of around 50 pips yesterday even though crude oil, Canada’s most lucrative export, plunged to a near-11-year low.
Fears of a global supply glut pushed crude -4% lower to around $36 per barrel during the afternoon, which was roughly the lowest level since July 2004 when oil prices were still rebounding from single-digit lows hit in the 1998 financial crisis. However, ‘black gold’ stabilised by the end of the day and the ‘Loonie’ managed to avoid defeat.
Australian Dollar
The Pound to Australian Dollar exchange rate depreciated by three cents yesterday as investors bet that weak global growth prospects and plummeting commodity prices would prevent the Federal Reserve from hiking interest rates swiftly through 2016. The ‘Aussie’ was also boosted by the People’s Bank of China’s (PBoC) decision to allow the Yuan to weaken by -0.21% yesterday. Monday’s announcement was the PBoC’s sixth consecutive domestic depreciation.
New Zealand Dollar
The New Zealand Dollar followed in the footsteps of its Antipodean cousin with a 300-pip appreciation against Sterling yesterday. It seems that markets are toning down their 2016 Fed rate hike projections to suggest that the US central bank will only raise rates on two occasions next year. The prospect of further stimulus in China, New Zealand’s largest trading partner, also bolstered the appeal of the ‘Kiwi’ Dollar.
Data Released Today
09:30 GBP Consumer Price Index (YoY) (NOV) 0.1%
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment) (DEC) 31.0
13:30 USD Consumer Price Index (YoY) (NOV) 0.5%