Sterling
Investors’ recent love affair with the Pound ended yesterday following January’s CPI numbers. Although the UK headline rate of inflation struck a two-and-a-half-year high, the 1.8% score missed estimates of 1.9% and this set off a period of sharp Sterling selling.
The latest rise in inflation came as a result of rising oil and fuel prices, plus the depreciation of the Pound since the Brexit referendum last June. If price pressures continue mounting then the Bank of England could be moved to start raising interest rates sooner-than-anticipated, however, yesterday’s figures mean the UK central bank has slightly more room to manoeuvre.
The next key ecostat to look out for is this morning’s unemployment report, which is tipped to remain at 4.8%. So long as joblessness remains steady, the wage growth numbers will come under greater scrutiny. Britain needs wages to outpace price rises if consumer spending is to continue driving economic growth.
Euro
Sterling slid initially versus the single currency following the morning’s slightly lower-than-expected UK inflation numbers. However, GBP/EUR clawed back its gains by the end of the day as the Eurozone remained mired in existential threats.
In addition to the ongoing Greek debt crisis, demand for the Euro was limited by upcoming elections in France. Fears are mounting that far-right National Front leader Marine Le Pen could shock markets by riding a wave of nationalist populism that started with Brexit and was fuelled by the election of Donald Trump in America. Le Pen’s main rival Emmanuel Macron recently accused a group of Russian hackers of trying to sabotage his campaign, which echoed claims surrounding the US election and weighed on the single currency as traders grew anxious that Russian influence could support Le Pen and her anti-EU views.
The Euro was also put on the back foot by a Eurozone GDP print of 0.4%, which underperformed forecasts of 0.5%.
US Dollar
‘Cable’ depreciated by over half a cent yesterday as underwhelming UK CPI figures weighed on Sterling, while a hawkish message from Federal Reserve Chairwoman Janet Yellen bolstered the appeal of the US Dollar.
Bets of an interest rate hike in March increased by around 5% following a speech by Yellen to the US Congress. The Fed Chief noted it would be ‘unwise’ to wait too long before hiking rates, considering the positive momentum behind the US economy and the rising rate of inflation. March Fed hike bets remain lower than 20% at this juncture, but the hawkish tone of Yellen’s address suggests that the first of three hikes pencilled in for 2017 might not be that far away.
The ‘Greenback’ could easily register further gains during today’s session if this afternoon’s US inflation print matches economists’ forecasts of a four-year high of 2.4%.
Canadian Dollar
The Pound lost ground during the morning session following a more mild than expected rise in UK consumer prices, however, the Canadian Dollar sustained losses during the afternoon as fears of tighter policy south of the border drove demand for the risk-sensitive ‘Loonie’ lower.
Australian Dollar
Australian business confidence printed at 10.0, smashing forecasts of 6.0 yesterday, which helped to propel the Australian Dollar to a daily gain of around 75 pips. However, demand for the commodity-sensitive ‘Aussie’ was undermined in the afternoon by Fed Chair Janet Yellen’s hawkish rhetoric.
New Zealand Dollar
With no major New Zealand ecostats to contend with GBP/NZD traders followed the market pattern: Sterling was sold in the morning when the lower-than-anticipated British consumer price index was released, then the risk-sensitive currency (in this case the ‘Kiwi’) was sold in equal volumes in the afternoon due to fears of tighter monetary policy in the US.
Data Released
09:30 GBP ILO Unemployment Rate (3M) (DEC) Medium 4.8%
09:30 GBP Average Weekly Earnings (3M/YoY) (DEC) Medium 2.8%
3:30 USD Consumer Price Index (YoY) (JAN) High 2.4%
13:30 USD Advance Retail Sales (JAN) High 0.1%
15:00 USD Fed Chair Yellen Delivers Semi-Annual Testimony to House Panel High