Sterling
The Pound registered gains versus some of the majors at the beginning of this week’s session thanks to the recent shift in Bank of England rhetoric towards a potential rate hike at some point in 2017. Indeed, this time last week traders estimated there was a 25% chance of rate rise in November 2017, whereas markets currently believe there is a 44% chance of a November hike.
However, Sterling softened slightly later on in the day as UK Prime Minister Theresa May outlined her planned date for triggering Brexit.
Sterling is liable to make up ground against its major currency rivals today if this morning’s UK CPI report prints positively. Traders are primed for a rise in inflation from 1.8% to 2.1%, which would bring the consumer price index above the BoE’s 2.0% target rate for the first time since late 2013. This would likely bolster BoE rate hike bets and give the Pound a little bit of a boost.
Euro
On Monday the Pound to Euro exchange rate held onto most of its gains from the end of last week’s session. However, Sterling did cede some ground to the single currency following UK PM Theresa May’s announcement that she would be triggering Article 50 on March 29. The news did not have a major influence on currency markets because investors have long since given up the idea that Brexit may not happen, but the Pound did stumble a little bit following the announcement.
US Dollar
The ‘Greenback’ softened against the majors over the weekend, with the Dollar index hitting a six-week low, as traders reacted cautiously to a disappointing G-20 meeting. The fact that G-20 leaders, in a joint statement, dropped a pledge to keep global trade open and free was seen as a sign that the US is keen to push ahead with President Donald Trump’s protectionist trade policies. This hurt US economic sentiment and led to a depreciation in the US Dollar.
GBP/USD hit a three-week high yesterday morning, but the Pound gave up its gains later in the day when UK PM Theresa May announced the date of the beginning of Britain’s formal divorce process from the EU.
While the US Dollar softened last week when the Federal Reserve gave a cautious outlook for monetary policy, sentiment towards the world’s premier reserve currency picked up yesterday thanks to a more positive statement from Charles Evans, Chicago Fed President. Evans noted that three Fed hikes are likely this year and hinted that there could even be four rate rises if the economy ‘really’ picks up.
Canadian Dollar
After striking its highest peak for almost two months against the Canadian Dollar, Sterling eventually gave up its gains. Later today Canadian retail sales are expected to print at 1.3% for January, which could give the ‘Loonie’ a boost as the previous month saw a contraction in consumer spending of -0.5%.
Australian Dollar
Sterling weakened by around half a cent against the Australian Dollar yesterday as Brexit concerns came into sharper focus. However, we could see GBP/AUD rally during today’s session if this morning’s UK CPI report is seen to increase the pressure on the BoE to raise interest rates sooner-rather-than-later.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled by around half a cent yesterday, having previously been trading close to its highest level for two months. However, the impact of UK PM Theresa May’s Brexit date is unlikely to have a lasting impact on the Pound because the event is already priced into the currency. This means there is potential for Sterling to move higher today if British consumer prices come in positively.
Data Released
09:30 GBP Consumer Price Index (YoY) (FEB) High 2.1%
12:30 CAD Retail Sales (MoM) (JAN) Medium 1.3%