Sterling
Sterling registered a rare day of gains yesterday as one Bank of England policymaker shocked markets with a vote for an immediate rise in UK interest rates.
The monetary policy committee (MPC) voted 8-1 against raising rates at this juncture, however, it was Kristin Forbes’ surprise hawkish vote that caught traders’ attention and drove the Pound higher against the majors. The majority of the rate-setting team viewed the deceleration of pay growth as a warning sign that monetary policy did not need to be tightened, but some officials did hint that they could vote for a hike in the future if price pressures continued to build. Indeed, British inflation recently struck a two-year high of 1.8% and is tipped to peak around the 3.0% mark over the next few years.
Euro
Rising UK rate hike bets drove the Pound to Euro exchange rate higher by around a third of a cent yesterday. Sterling’s gains could have been greater had it not been for Dutch Prime Minister Mark Rutte’s clear victory over nationalist, anti-EU far-right challenger Geert Wilders.
Wilders campaigned on an anti-immigration, anti-Islam platform and it was feared that a strong showing could precede further nationalist strength in the currency bloc. However, the far-right leader was comprehensively beaten, gaining 20 seats to Rutte’s 33, which helped to increase demand for the single currency. The result was also seen to decrease the likelihood of a victory for anti-EU French far-right candidate Marine Le Pen – as evidenced by a dip in the risk premium on French government bonds.
The Euro was also boosted by confirmation that Eurozone CPI hit a four-year high of 2.0% in February.
US Dollar
‘Cable’ shrugged off the Federal Reserve’s recent decision to raise borrowing costs yesterday, with GPB/USD climbing by around a cent to hit a fortnightly high.
Sentiment towards Sterling was also improved by news that British Prime Minister Theresa May was unwilling to give Scotland permission to hold a second independence vote. May told the Scottish government that ‘now is not the time’ for another vote, adding, without irony, that it would be unfair to ask people to vote without knowing the results of the upcoming Brexit negotiations.
Canadian Dollar
The Pound to Canadian Dollar exchange rate jumped by around 150 pips yesterday as a dissenting hawkish BoE vote raised the prospect of higher UK interest rates. Some traders had previously predicted that British borrowing costs would not rise until 2019, when the Brexit talks are finally concluded, however, there is now a serious possibility that rates could rise at some point in 2017.
Australian Dollar
Sterling rebounded against the Australian Dollar yesterday, appreciating by over a cent on the more-hawkish-than-expected Bank of England policy statement. The ‘Aussie’ Dollar had initially performed well despite data showing that unemployment ticked higher from 5.7% to 5.9% in February.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate struck a fresh two-month high yesterday after racking up a daily gain of around 150 pips on renewed optimism surrounding the outlook for UK borrowing costs.
Data Released
13:15 USD Industrial Production (FEB) Medium 0.2%
14:00 USD U. of Michigan Confidence (MAR P) High 97