Sterling
The Pound recovered some ground versus the majors on Monday following a spate of losses last week. There were no key data releases on the day. However, a couple of political developments caught the eye.
Firstly, Scottish First Minister Nicola Sturgeon said she would be seeking the authority to trigger a second Scottish independence referendum. The Pound actually performed strangely well on news of the announcement, most likely because Sturgeon laid out plans to hold the vote between autumn 2018 and spring 2019, which was a lot further out than some had feared.
And secondly, a spokesperson from Downing Street revealed, contrary to newspaper reports, that UK Prime Minister Theresa May would not be triggering Article 50 this week. The news led most analysts to pencil in the final week of March as the most likely date for formally beginning Britain’s divorce process from the European Union. Some political commentators suggested that Sturgeon’s call for a second referendum may have forced May’s hand, in that triggering the Brexit clause at this juncture could make the PM appear cavalier about the Great British Union.
Euro
The Pound to Euro exchange rate rallied by around a cent yesterday to recover from a fresh seven-week low.
The single currency had gained support last week following mutterings that some European Central Bank (ECB) policymakers had discussed the possibility of raising interest rates before fully winding down the bank’s quantitative easing scheme. However, bullish sentiment towards the Euro appeared to dry up yesterday, with ECB President Mario Draghi using a speech in Frankfurt to focus on technological innovation rather than potential monetary tightening.
This morning’s data releases from across the Channel are expected to show that Eurozone industrial production decelerated from 2.0% to 0.9% in January and that German economic sentiment rose from 10.4 to 13.0 at the start of March.
US Dollar
Sterling managed to rally by around half a cent versus the US Dollar yesterday in a move that appeared to confirm that bets of a March Federal Reserve rate hike really have run their course.
This means that if the US central bank opts to raise rates on Wednesday the ‘Greenback’ is unlikely to appreciate unless the Fed also upgrades its outlook for future policy. Providing rates are indeed hiked this week markets – and the Fed – are currently prepared for a further two 25 basis point rises in 2017. With inflation set to rise from 2.5% to 2.7% ahead of the Fed meeting, there is every chance that policymakers could use the statement to signal further hawkish intent.
Canadian Dollar
A mixture of profit-taking and sliding oil prices helped the Pound to Canadian Dollar exchange rate register gains of around 70 pips yesterday.
Demand for the commodity-correlated ‘Loonie’ was impacted by fears that America’s shale industry could be plugging the gap in the market created by the historic OPEC and non-OPEC agreement to curb crude production late last year. Oil hit its lowest level since November and implied volatility rose by the most since August 2015, both of which damaged the appeal of the Canadian Dollar.
Australian Dollar
Technical trading patterns shifted in favour of Sterling strength versus the Australian Dollar yesterday, however, GBP/AUD only mustered mild gains at the start of this week’s session. The next key event related to the ‘Aussie’ Dollar is Thursday morning’s Australian unemployment report, which is tipped to remain at 5.7%.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate struck a fresh two-month high yesterday as traders bought back into the UK currency following a torrid end to last week’s session.
Data Released
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (JAN) Medium 0.9%
10:00 EUR German ZEW Survey (Economic Sentiment) (MAR) High 13