Sterling
Demand for the Pound remained constrained by Brexit tail risks yesterday as investors continued digesting rumours that Scotland would be pushing for a second independence referendum once British Prime Minister Theresa May triggers Article 50 to officially begin the UK’s two-year divorce with the EU.
Incoming Bank of England Deputy Governor Charlotte Hogg, who will join the monetary policy committee (MPC) at Threadneedle Street next month, said she was prepared to stand up to Governor Mark Carney if she disagreed with his outlook. Hogg hinted she would be less tolerant to above-target inflation than others member of the MPC. However, Hogg’s mildly hawkish comments failed to lift demand for the Pound.
Euro
The Pound to Euro exchange rate lost half a cent during the London session yesterday, sliding to a weekly low.
Data showed that Italian CPI jumped from 1.0% to 1.6%, which was seen to bode well for this week’s Eurozone consumer price index. With German inflation expected to rise from 1.9% to 2.1% this afternoon there is every chance that the single currency could benefit from a robust Eurozone CPI print on Thursday. Analysts currently anticipate the European figure will hit 1.9% but a larger rise cannot be discounted.
The biggest ecostat for GBP/EUR traders to look out for today is the UK manufacturing PMI report for February. Economists are primed for a reading of 55.7, which is slightly lower than January’s 55.9 but is likely to prove sturdy enough to prevent Sterling ceding further ground to the single currency. However, any positive or negative deviations from the forecasts could drive GBP/EUR higher or lower.
US Dollar
The Pound initially rallied against the US Dollar yesterday afternoon when US data showed softer-than-anticipated growth. However, Sterling rapidly gave up those gains as investors geared up for a speech from President Donald Trump.
The latest US growth revision showed that the world’s largest economy expanded at an annualised rate of 1.9% in the fourth quarter. This matched previous estimates but disappointed analysts’ view that GDP would be upgraded to 2.1%. Additionally, the US goods balance report came in at -$69.2 billion, which was worse than forecasts of -$66.0 billion. The US consumer confidence report, however, reflected much more optimistically on the US economy with a 15-year high of 114.8, up from 111.8 previously.
Trump’s first official Presidential address to the houses of Congress ended up being a bit of a damp squib. The President struck a soothing note, reminiscent of his victory speech and in contrast to the combatant tone that has characterised much of his time in office. This appeared to please investors somewhat and meant that his lack of policy clarity was not punished.
Political rhetoric was employed throughout, with promises to overhaul immigration, improve jobs and wages and ‘massive’ tax relief for the middle classes. However, very little detail was given on his plans for tax reform or fiscal spending – although Trump did mention that he planned to inject $1 trillion into infrastructure projects. Overall, the ‘Greenback’ remained flat through the meeting.
Canadian Dollar
The Pound rallied by just under a cent versus the Canadian Dollar during the London session yesterday as markets sold the ‘Loonie’ ahead of this afternoon’s Canadian central bank meeting, which is tipped to see the Bank of Canada leave rates on hold at 0.50%.
Australian Dollar
Sterling tumbled by around half a cent earlier this morning when Australian GDP printed at 1.1% for the fourth quarter. The better-than-anticipated result marked a tasty rebound from Q3’s -0.5% contraction. On a yearly basis the Antipodean nation racked up a GDP expansion of 2.4% in the final three months of last year.
New Zealand Dollar
The New Zealand Dollar suffered sharp losses against the Australian Dollar earlier this morning following the upbeat Australian GDP report and large moves in AUD/NZD dragged the ‘Kiwi’ lower across the board.
Data Released
09:30 GBP Markit UK PMI Manufacturing SA (FEB) Medium 55.7
13:00 EUR German Consumer Price Index (YoY) (FEB P) High 2.1%
15:00 CAD Bank of Canada Rate Decision (MAR 01) High 0.50%
15:00 USD ISM Manufacturing (FEB) High 56.2