Sterling
The Pound continued to soar against the majors yesterday as investors mulled over recent reports giving just a 20% chance that Britons will vote to leave the European Union in June.
However, Sterling’s recent resurgence could come under fire this morning if GDP data shows that domestic growth slowed significantly at the start of the year. Analysts are primed for a growth print of 0.4% for Q1, down from 0.6% previously, but anything below this figure could easily knock back Bank of England rate hike expectations and weigh on the Pound.
Euro
The Pound to Euro exchange rate rose half a cent to reach a new five-week high yesterday as investors continued to adjust their valuations of Sterling.
GBP/EUR depreciated by around -15 cents in the first four months of the year as ‘Brexit’ bets proliferated and jittery traders sought to hedge against the threat of a run on Sterling. However, recent developments suggest that the Pound’s selloff was overdone and what we’re seeing now is a rebound to reflect the current consensus regarding the EU referendum: that Britain will most likely remain part of the 29-nation bloc.
Having said that, this morning’s first quarter UK GDP report does carry the potential to halt Sterling in its tracks. Anything below 0.4% will be liable to drive the Pound to Euro rate lower; anything above could push GBP/EUR through significant technical resistance.
US Dollar
‘Cable’ rocketed through a number of resistance levels yesterday as improved UK sentiment bolstered the appeal of the Pound and soft US ecostats weighed on the ‘Greenback’.
US investors were disappointed to see durable goods orders come in at 0.8% because analysts had forecast a much sturdier score of 1.9%. The underwhelming result was taken as a sign that subdued global demand and unspectacular consumer confidence at home were combining to make business owners nervous about investing heavily in new gear. A separate report confirmed that US consumer confidence cooled in April, sliding from 96.2 to 94.2.
The downbeat stats allowed Sterling to strengthen by just over a cent to reach its highest level since the start of February.
GBP/USD could climb further this evening if the Federal Reserve’s latest policy outlook is seen to discourage September rate hike bets, but the US Dollar could rebound if the US central bank talks up the possibility of a near term piece of tightening.
Canadian Dollar
The Pound registered a solid 150-pip rally against the Canadian Dollar yesterday afternoon but profit taking stances kicked in when GBP/CAD poked its head over a psychological resistance level. Crude oil prices rose slightly but it appears that a barrage of investors locking in profit drove Sterling lower before the end of the London session.
Australian Dollar
Amid reduced ‘Brexit’ bets and predictions from analysts that the ‘Aussie’ Dollar is overvalued and heading for a fall, Sterling managed to appreciate 80 pips against the Australian Dollar to reach its highest level since the start of the month.
Analysts reckon the ‘Aussie’ Dollar has appreciated too fast relative to fundamental drivers and expect policymakers at the Reserve Bank of Australia to start verbally jawboning the Antipodean currency over the next few weeks to try and bring the Dollar back down to earth.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate touched an April high yesterday as British sentiment continued to improve. However, there is potential for GBP/NZD to soften this evening if the Reserve Bank of New Zealand decides against cutting interest rates. On the other hand, a decision to slash borrowing costs would likely lead to a significant leap higher.
Data Released
09:30 GBP Gross Domestic Product (QoQ) (1Q A) Medium 0.4%
09:30 GBP Gross Domestic Product (YoY) (1Q A) High 2.0%
19:00 USD Federal Open Market Committee Rate Decision (APR 27) High 0.50%
22:00 NZD Reserve Bank of New Zealand Rate Decision (APR 28) High 2.25%