Sterling
It was a quiet day of economic news in Britain yesterday. The only ecostat of note showed that Nationwide’s index of house prices slowed from 5.7% to 4.9% in April: the report had virtually zero impact on traders’ valuations of the Pound.
Bank of England Governor Mark Carney said that the looming EU referendum was to blame for the GDP slowdown at the start of the year. British growth cooled from 0.6% to 0.4% in the first quarter, it was reported on Wednesday, but investors didn’t sell Sterling following the print because they had predicted that exact score.
Euro
The Pound to Euro exchange rate rallied by around a third of a cent yesterday in reaction to a report showing that German consumer price inflation decelerated from 0.3% to 0.1% in April. The slide in German CPI hurt the single currency because it suggests that the European Central Bank’s expansive stimulus measures are not yet having the desired effect.
If European price pressures continue to stagnate then the Euro could weaken, as investors begin pricing in the prospect of additional easing from the ECB. Today’s Eurozone inflation report is tipped to see the headline index remain at 0.0%; anything lower than that could lead to losses for the single currency.
However, the Euro could fight back if Eurozone growth impresses. The median market consensus suggests GDP rose from 0.3% to 0.4% in Q1.
US Dollar
US GDP growth almost ground to a halt in the first quarter of 2016, it was reported yesterday.
The latest growth report showed that economic activity tumbled from an annualised growth rate of 1.4% in Q4 2015 to just 0.5% in Q1 2016. The downbeat figures point to quarterly growth of just 1.25% in the first three months of the year, which weighed on the US Dollar as traders pushed back their Federal Reserve interest rate hike bets.
During the Fed’s latest policy statement on Wednesday evening, Chairwoman Janet Yellen attempted to keep the door open to a rise in rates at the central bank’s meeting in June. However, in light of yesterday’s poor GDP report, analysts are now fairly certain that the Fed will sit tight through the summer. The fact that the EU referendum falls just eight days after the Fed’s meeting is further evidence for the argument against a June hike.
The Pound strengthened by around 70 pips against the US Dollar during yesterday’s session.
Canadian Dollar
The Sterling to Canadian Dollar exchange rate fluctuated with no real directional bias yesterday. However, we could see the Pound appreciate versus the ‘Loonie’ this afternoon if markets are disappointed with the latest Canadian GDP data. The North American economy is tipped to have contracted -0.1% during the month of February, but on a yearly basis the growth indicator is expected to rise to 1.6% so it remains to be seen how the pair trades following the print.
Australian Dollar
Sterling maintained its robust three-cent daily gain from Wednesday’s session yesterday. There was potential for the risk-sensitive ‘Aussie’ to rebound, however, Asian traders were disappointed by inaction from the Bank of Japan. Coming into the BoJ’s policy meeting expectations were high for further easing measures. Alas, the measures were not forthcoming and stimulus-hungry investors opted against piling back into the high-beta ‘Aussie’.
New Zealand Dollar
The New Zealand Dollar clung to its recent gains against the Pound yesterday as GBP/NZD continued to reflect the softened outlook for additional Reserve Bank of New Zealand rate cuts. The RBNZ had been expected to use its recent policy statement to pave the way for a reduction in rates, but the neutral tone breathed life into the ‘Kiwi’ and pushed GBP/NZD lower.
Data Released
09:30 GBP Mortgage Approvals (MAR) Medium 74.4k
10:00 EUR Eurozone Unemployment Rate (MAR) Medium 10.3%
10:00 EUR Eurozone Consumer Price Index Estimate (YoY) (APR) High 0.0%
10:00 EUR Eurozone Gross Domestic Product s.a. (QoQ) (1Q A) Medium 0.4%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (1Q A) High 1.4%
13:30 CAD Gross Domestic Product (MoM) (FEB) Medium -0.1%
13:30 CAD Gross Domestic Product (YoY) (FEB) High 1.6%