Sterling
Sterling rallied across the board yesterday following the Bank of England’s ‘Super Thursday’ trio of announcements.
The BoE left policy on hold, cut its growth and inflation forecasts and spoke at length of the potential pitfalls of a vote to leave the European Union. However, despite these dovish indicators, Sterling sentiment was boosted by news that all nine policymakers voted against slashing interest rates this month. Markets had feared that one or more policy makers would vote to loosen policy to combat the recent slowdown in economic activity.
BoE Governor Mark Carney’s controversial decision to explicitly link a ‘Brexit’ vote to the possibility of an economic recession made the headlines but, seeing as most analysts expect the public to vote to remain in the EU, markets were barely moved by the remarks.
Euro
The Pound to Euro exchange rate strengthened by around a cent yesterday afternoon following the Bank of England’s latest policy statements. The single currency was also hurt by news that industrial production shrunk -0.8% in the Eurozone during March.
Governor Carney warned that a ‘Brexit’ scenario could massively impact domestic growth, possibly lead to a recession and would potentially persuade officials at the central bank to cut interest rates. The views espoused by the Governor suggest that a ‘Brexit’ would simultaneously trample on growth expectations, weaken the Pound and drive inflation unwantedly higher.
On the flipside, the bank’s gloomy assessment of the referendum suggests that British economic activity could surge fairly rapidly if Britons follow the status quo and vote to remain in the 29-nation bloc. This would potentially see Sterling jump higher across the board as confidence returns and rate hike projections creep back into the horizon.
US Dollar
‘Cable’ rallied by around 70 pips yesterday afternoon in the wake of the BoE minutes report, which showed that policymakers voted unanimously 9-0 against cutting rates ahead of next month’s EU referendum.
However, the ‘Greenback’ clawed back most of its losses by the end of the London session in response to some positive remarks from Federal Reserve officials. Cleveland Fed President Loretta Mester sounded a hawkish tone, arguing that the bank shouldn’t fixate on inaccurate economic forecasts and should instead focus on the available inflation data, which has shown an increase in consumer price pressures from 1.3% to 1.7% over the past year. Mester’s upbeat comments bolstered the appeal of the US Dollar and helped bring GBP/USD down ahead of this afternoon’s US retail sales, business inventories and investor confidence reports.
Canadian Dollar
The Pound to Canadian Dollar exchange rate remained fairly flat yesterday following volatility earlier in the week related to the Alberta wildfire. Luckily, the fire appears to be under control now thanks to the efforts of over 700 Canadian firefighters. The disaster halted oil production in the lucrative oil sands area but some factories are back up and running and others could resume production over the next few days.
Australian Dollar
Sterling surged higher by almost two cents against the Australian Dollar yesterday. GBP/AUD began its ascent in the early hours of the morning in response to news that Australian inflation expectations cooled from 3.6% to 3.2% at the beginning of the month, which was seen to further increase the argument for additional Reserve Bank of Australia rate cuts.
The Pound continued appreciating throughout the day as markets reacted positively to news that no BoE policymakers voted to slash borrowing costs in May.
New Zealand Dollar
Sterling sentiment increased yesterday as markets breathed a sigh of relief following the latest policy statements from the Bank of England. This helped the Pound rally by around 40 pips against the New Zealand Dollar, but things could have been very different if just one BoE official had voted against the grain and pushed for lower rates.
Data Released
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (1Q P) Medium 0.6%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (1Q P) High 1.6%
13:30 USD Advance Retail Sales (APR) High 0.8%
15:00 USD Business Inventories (MAR) Medium 0.2%
15:00 USD U. of Michigan Confidence (MAY P) High 89.5