Sterling
UK inflation jumped from 1.8% to 2.3% in February, it was announced yesterday, beating forecasts of 2.1% and rising above the Bank of England’s 2.0% target for the first time since late 2013.
The Pound jumped on the news, with investors increasing their bets of an interest rate hike from the Bank of England. Food and fuel prices were the main drivers, while higher import costs due to the depreciation of Sterling last year also played a part. Demand for Sterling was also boosted by news that the UK government borrowed £1.8 billion to balance the books in February, lower than forecasts of £2.1 billion and the lowest February figure since before the financial crisis in 2007.
Euro
Despite a fairly strong showing from French Presidential candidate front-runner Emmanuel Macron in a televised debate, which was seen to reduce the chances of a victory for anti-EU far-right leader Marine Le Pen, the Euro was unable to mount a rally versus the Pound yesterday. GBP/EUR hit a 10-day high after rallying 50 pips.
Demand for Sterling flourished following the robust UK CPI report, which saw consumer prices rise faster than the BoE’s target rate and could prompt a return to higher interest rates sooner-rather-than-later. A report from the Confederation of British Industry (CBI), showing that manufacturing optimism is running at a 22-year high, also worked in Sterling’s favour. The CBI noted that the fall in the Pound last year was starting to boost demand for export orders.
US Dollar
The Pound to US Dollar exchange rate surged by around 130 pips yesterday to hit a fresh three-week high as hawkish BoE bets increased following the above-target UK inflation print.
Across the pond in the US, non-voting Federal Reserve official Esther George noted that the US central bank sees opportunity to remove some of the crisis-era accommodation. The statement, however, did little to bolster the appeal of the ‘Greenback’, with traders fairly settled on their outlook for a further two 25 basis point rate rises in 2017. For the US Dollar to appreciate on Fed sentiment, we will need to see a hawkish shift in rhetoric hinting at additional (more than the two planned rate rises) monetary tightening this year.
Canadian Dollar
Sterling strengthened by around 130 pips yesterday to hit its highest level of 2017 against the Canadian Dollar. Rising BoE rate expectations boosted the Pound, allowing GBP/CAD to rally even though Canadian data came in positively. Doubling forecasts of 1.1%, the latest Canadian retail sales report indicated that sales volumes soared 2,2% in January. The data gave the ‘Loonie’ a temporary kick immediately after release, but the Pound ended the day on top.
Australian Dollar
Sterling appreciated by around two cents against the Australian Dollar yesterday to hit a 10-day high as higher-than-anticipated UK CPI numbers bolstered the appeal of the Pound. The risk-sensitive ‘Aussie’, meanwhile, was hurt by a downbeat minutes report from the Reserve Bank of Australia suggesting officials had no intention of raising rates in 2017.
New Zealand Dollar
The Pound increased in value by around two cents versus the New Zealand Dollar yesterday. The ‘Kiwi’ enjoyed a brief recovery during the afternoon when it was announced that milk prices rose at the latest auction, however, the Pound powered ahead to complete a robust set of daily gains. The Reserve Bank of New Zealand is due to announce monetary policy this evening, with most analysts anticipating a hold at 1.75% and a neutral statement. If the RBNZ were to surprise markets with dovish sentiment then the ‘Kiwi’ could easily decline. On the other hand, a hawkish statement could set the New Zealand Dollar on a higher path.
Data Released
20:00 NZD Reserve Bank of New Zealand Rate Decision (MAR 23) High 1.75%