Sterling
The Pound weakened versus most of the majors yesterday as markets reacted to some fairly dovish remarks from the Bank of England’s most hawkish policymaker.
Ian McCafferty, who only this month stopped voting for higher interest rates, said that the bank was not ‘out of ammunition’ and suggested that further rate cuts or asset purchases were a possibility if economic conditions continued to deteriorate. The BoE’s former lone hawk noted that inflation pressures had receded but concluded that the bank’s next move would likely be a rate hike rather than a rate cut.
Later today a UK consumer price index report is tipped to show a slight improvement in inflation from 0.2% to 0.3%.
Euro
Although McCafferty’s dovish rhetoric weighed on the Pound, Sterling actually rallied by around a third of a cent against the Euro yesterday.
Demand for the single currency stumped when European Central Bank President Mario Draghi announced that the bank was ‘ready to do its part’ to make the Eurozone more resilient. His thinly veiled hint at further stimulus weighed on the Euro as traders began to up their bets that interest rates will be cut and additional bonds will be bought in March.
Draghi cited the recent sharp falls in oil prices and other commodities as downward risks that policymakers would be monitoring closely over the next few weeks. It is now highly likely that the ECB will at least announce some form of new stimulus at next month’s meeting.
US Dollar
The Pound to US Dollar exchange rate sank by around half a cent yesterday as the latest dovish statement from the BoE softened the appeal of the UK currency.
This morning’s UK CPI data could give ‘Cable’ a minor boost if the median market forecast of 0.3% is met. However, traders are liable to view any Sterling rallies with caution, considering that US inflation is tipped to jump from 0.7% to 1.3% on Friday.
Canadian Dollar
Sterling depreciated by just over a cent against the Canadian Dollar yesterday as dovish BoE bets weighed on the Pound and hopes of an OPEC deal to cut production bolstered the appeal of the commodity-sensitive ‘Loonie’. The OPEC deal rumours helped drive crude oil prices higher by around 1%, following a 12% rise in the oil futures market on Friday – the largest one-day percentage gain since 2009.
Australian Dollar
The Pound to Australian Dollar exchange rate weakened by around two cents yesterday to a 10-day low as the prospect of higher UK interest rates receded even further. Last week market futures indicated that investors were not expecting the Bank of England to begin its hiking scheme until 2020 and a dovish set of comments from the bank’s most hawkish policymaker solidified that view yesterday afternoon.
New Zealand Dollar
The New Zealand Dollar jumped on the bandwagon and rallied by around two cents against Sterling yesterday as Ian McCafferty’s latest remarks cast a dovish shadow over the Pound. Sterling clawed back some of its losses when the New Zealand retail sales print came in slightly lower-than-anticipated at 1.2% instead of 1.5%. GBP/NZD could recover further this afternoon if the highly anticipated dairy auction sees farmer pay outs decrease as some analysts expect.
Data Released
09:30 GBP Consumer Price Index (YoY) (JAN) High 0.3%
09:30 GBP Core Consumer Price Index (YoY) (JAN) High 1.3%
10:00 EUR Euro-Zone ZEW Survey (Economic Sentiment) (FEB) High 22.7