Sterling
Sterling suffered yesterday as markets reacted to data showing that the UK factory sector entered recession in the first quarter of 2016.
Production tumbled -0.4% in Q1, which followed a quarterly contraction in Q4 2015 to signal that the industrial sector is currently experiencing its third technical recession since the financial crisis of 2008. The downbeat data was followed by a report from the National Institute of Economic and Social Research (NIESR) estimating that British GDP cooled to 0.3% over the last three months, which piled additional pressure on the Pound ahead of today’s announcements from the Bank of England.
Analysts do not expect officials to alter policy during today’s ‘Super Thursday’ trio of statements. However, there is a real possibility that the minutes report could reveal that some policymakers are prepared to slash interest rates at this juncture. If this proves to be the case the Pound could easily find itself sliding.
Euro
The Pound to Euro exchange rate slumped half a cent yesterday as terrible British industrial production numbers weighed on Sterling ahead of ‘Super Thursday’.
Investors are not expecting any significant changes to the BoE’s inflation or GDP forecasts because the spectre of ‘Brexit’ hangs heavy over the domestic economy, meaning it would be difficult to make any accurate estimates at this stage. However, the approaching EU vote and the uncertainty it has brought to Britain means that some policymakers could vote for lower rates – and if they do GBP/EUR could tank.
US Dollar
In the calm before the storm, Sterling managed to strengthen minimally against the ‘Greenback’ yesterday.
GBP/USD’s 15-pip gain is unlikely to mean anything in the long run but it was interesting to see that traders were not keen to push ‘Cable’ lower ahead of today’s BoE announcements. This suggests that we could see the Pound rally against the US Dollar this afternoon if the bank’s statements are not considered especially dovish. On the other hand, a bout of negative rhetoric could easily reduce the appeal of the Pound and send GBP/USD spiralling lower.
Canadian Dollar
Sterling shrunk by around a cent yesterday against the Canadian Dollar as crude oil prices ticked higher.
Oil rallied nearly 2% in response to US inventory data showing that stockpiles fell -3.4 million barrels last week, which massively undershot expectations of a 100,000 rise. The data helped assuage fears of a glut and subsequently the commodity-correlated ‘Loonie’ was able to appreciate across the board.
Australian Dollar
The Pound weakened slightly against the Australian Dollar yesterday as the unexpected drop in US oil inventories lifted global risk sentiment and bolstered the appeal of the ‘Aussie’.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled by around two cents yesterday as rising oil prices boosted risk appetite and the nation’s central bank refrained from rolling out new housing measures.
The ‘Kiwi’ had been expected to depreciate if the Reserve Bank of New Zealand announced new measures to help cool the housing market during its financial stability report. However, the RBNZ opted against such a move and subsequently the ‘Kiwi’ shot up versus the Pound.
Data Released
12:00 GBP Bank of England Rate Decision (MAY 12) High 0.50%
12:00 GBP BOE Asset Purchase Target (MAY) High 375b
12:00 GBP Bank of England Inflation Report High
13:30 USD Initial Jobless Claims (MAY 7) Medium 270k
16:00 USD Fed’s Mester Speaks About Inflation Dynamics Medium
23:45 NZD Retail Sales Ex Inflation (QoQ) (1Q) Medium 1.0%