Sterling
The Pound found respite following Chancellor Philip Hammond’s Spring Budget yesterday, however, Sterling had already lost ground versus some of the majors ahead of the Budget statement.
The main takeaways from Hammond’s announcement were that the Office for Budget Responsibility (OBR) had raised its 2017 GDP forecasts from 1.4% to 2.0% and that the government would be pumping around £2 billion into the economy next year in the form of additional social care spending and changes to the proposed business rates reform.
The mild spending increases stemmed Sterling’s losses on the day but are unlikely to lend the UK currency significant support going forward.
Euro
The Pound to Euro exchange rate touched a fresh seven-week low yesterday morning but demand for Sterling picked up during the afternoon following the Spring Budget.
Later today the European Central Bank is due to announce monetary policy for March. The ECB is tipped to leave its benchmark interest rate on hold at 0.00%, its deposit rate on hold at -0.40% and its monthly asset purchasing target on hold at €80 billion. However, with European inflation rising to four-year highs there has been speculation that the central bank may soften its easing bias and hint at a future unravelling of ultra accommodative policy. If this were to be the case we could see GBP/EUR slide towards 2017 lows. On the other hand, the ECB may well maintain a dovish outlook and this could send the Pound higher against the single currency.
GBP/EUR has declined almost four cents over the last eight sessions, declining in seven out of the eight.
US Dollar
The Pound to US Dollar exchange rate depreciated by around a third of a cent yesterday to hit another new seven-week low. ‘Cable’ has now tumbled in nine out of the last ten sessions, losing four cents in the process.
Although GBP/USD’s slide slowed following Philip Hammond’s Spring Budget, the ‘Greenback’ made another push higher during the afternoon following optimistic labour market figures.
The ADP employment change indicator smashed economists’ forecasts of 187,000 with a mammoth 298,000 gain in February. The result marked the best monthly increase in almost three years, which boded well for Friday’s US non-farm payrolls report, and subsequently boded well for the US Dollar as March Federal Reserve rate hike bets continued to surge. Markets now anticipate an 86% chance that the US central bank will raise rates by 25 basis points later this month.
Canadian Dollar
Sterling put in a decent performance against the Canadian Dollar in the later parts of yesterday’s session, rallying by around 60 pips as softening oil prices and a rampant US Dollar dragged the ‘Loonie’ lower.
The Canadian Dollar often fluctuates in tandem with oil price movements because crude is the North American nation’s most lucrative export. On this occasion an unexpectedly large build in US crude inventories was the catalyst for the move lower. The risk-sensitive ‘Loonie’ also lost out to the traditional safe havens due to increased bets that the Federal Reserve would raise interest rates later this month. This is liable to reduce investors’ appetite for volatile investments such as the commodity-correlated Canadian Dollar.
Australian Dollar
The Pound to Australian Dollar exchange rate ticked higher by around 70 pips yesterday. It seems that the main driver behind the move was the increased possibility of tighter monetary policy in the world’s largest economy- the US – while the UK Budget also gave Sterling a little bit of a leg-up.
New Zealand Dollar
Sterling has performed horrendously against the Euro and the US Dollar over the past few weeks, however, against the New Zealand Dollar the Pound has managed to plod higher over the past few days on the back of a global trader aversion to risk. GBP/NZD even reached a two-month high yesterday after rallying by almost a cent.
Data Released
12:45 EUR European Central Bank Rate Decision (MAR 09) High 0.00%
12:45 EUR ECB Deposit Facility Rate (MAR 09) High -0.40%
12:45 EUR ECB Asset Purchase Target (MAR) Medium EU80b