Sterling
The Pound took a backseat yesterday and fluctuated in time to economic beats from foreign soils. With little domestic data on the docket this week it seems that Sterling could continue to strengthen and weaken in reaction to events taking place abroad over the next few days. Of course ‘Brexit’ fears and Bank of England rate expectations will play a part but, barring any untelegraphed announcements, the majority of Sterling’s moves on the currency market could easily become decoupled from the UK data calendar.
Euro
The Pound to Euro exchange rate rallied by around a third of a cent yesterday as Eurozone investor confidence hit an 11-month low and Greek exit concerns returned.
The Sentix investor sentiment index showed that confidence declined from 6.0 to 5.5 in February as analysts feared that ‘the loss of momentum of the global economy’ could strangle the nascent recovery in the currency bloc.
‘Grexit’ fears reared their ugly heads as Eurozone finance ministers met to discuss Athens’ progress in its latest bailout package. Some analysts, citing the refugee crisis, said the situation was worse than it was last summer when the bailout accord was signed and former finance minister Yanis Varoufakis quit. The Troika of international lenders is due to return to Greece today to review the nation’s public finances and potentially begin discussions on debt relief for the embattled southern state.
Also on the agenda this morning is a pair of Eurozone GDP reports, which are tipped to confirm that the 19-nation bloc grew 0.3% quarter-on-quarter and 1.5% year-on-year during the final three months of 2015.
US Dollar
Sterling racked up another unlikely half cent gain against the US Dollar yesterday to strike a fresh fortnightly high. The safe-haven ‘Greenback’ lost ground across the board as rallying commodity markets reduced investors’ appetite for low-yielding but stable asset classes such as the Dollar.
It is possible that currency traders were disappointed with remarks from Federal Reserve official Lael Brainard, who remarked that ‘tighter financial conditions and softer inflation expectations may pose risks to the downside for inflation and domestic activity’. However, Brainard’s dovish comments were nothing out of the ordinary and merely followed suit from previous Fed commentators so it is unlikely that investors were significantly moved to sell the ‘Greenback’ following the speech.
Canadian Dollar
The Pound weakened slightly against the Canadian Dollar as crude oil prices rose above US$40 per barrel for the first time since the start of December. Oil futures rose after Chinese officials set an optimistic growth target of 6.5% to 7.0% this year, which boosted global economic sentiment. Hopes of production cuts from the major producers also helped to prop-up crude prices and subsequently increase demand for the commodity-sensitive ‘Loonie’.
Australian Dollar
Sterling depreciated by around a cent yesterday to strike a new 10-month low against the Australian Dollar as investors reacted to an impressive 17% rise in iron ore prices.
Iron has increased in value by around 54% so far this year, which has given the ‘Aussie’ Dollar a marked boost because iron is one of the nation’s largest and most lucrative exports. Yesterday’s 17% spike was the largest one-day gain on record and brought iron to its highest value in nine months. If prices continue to rise then it is entirely possible that demand for the commodity-correlated Australian Dollar could follow suit.
New Zealand Dollar
Strangely the uptick in commodity prices and subsequent increase in risk sentiment did not translate into higher demand for the high-beta New Zealand Dollar yesterday. Instead, the Pound to New Zealand Dollar exchange rate grew by around 70 pips.
Data Released
10:00 EUR Eurozone Gross Domestic Product s.a. (QoQ) (4Q P) Medium 0.3%
10:00 EUR Eurozone Gross Domestic Product s.a. (YoY) (4Q P) High 1.5%