Sterling
The Pound, which has put in a strong performance over the last week thanks to rising Bank of England (BoE) rate hike expectations, steadied yesterday as UK economic prospects returned to the fore.
Sterling rallied last Thursday when one BoE policymaker voted to raise rates and others voiced support for a potential rate hike in the future. The Pound then pushed ahead further on Tuesday when British inflation leaped from 1.8% to a three-year high of 2.3%, which was seen to bolster the case for higher rates.
However, Sterling’s rally paused yesterday with some traders commenting that shaky consumer confidence and surging inflation could impact UK growth prospects this year. Analysts posited that the BoE could be utilising hawkish rhetoric in order to support the Pound, but questioned the wisdom of pushing borrowing costs higher at a time of softening consumer purchasing power.
The big event on the UK calendar today is February’s retail sales report. Investors are primed for a monthly expansion of 0.4%, which could boost demand for the Pound. But any additional signs of let up in the retail sector could have the opposite effect.
Euro
The Pound to Euro exchange rate flattened yesterday as BoE rate hike bets moderated.
A report into UK household finances suggested that consumers are the most downbeat about their financial prospects since November 2013. The index tumbled from 48.1 to 45.3 as rising inflation eroded disposable income and spending plans were recalibrated lower. The Bank of England’s latest regional agents report, which measures economic sentiment around the country, also reflected negatively on the recent rise in price pressures. The report indicated that retail sales were likely to slow in 2017 and this put a little bit of pressure on the Pound.
Across the Channel in the Eurozone, Jeroen Dijsselbloem, head of the Eurogroup finance ministers, got himself in hot water with disparaging comments about fiscal responsibility. The Dutch finance minister said:
‘I cannot spend all my money on liquor and women and then ask for your support. This principle holds at personal, local, national and even European levels’.
Although Dijsselbloem did not mention any specific countries, his remarks drew criticism from the southern Eurozone states, who have faced similar claims against them in the European press. Portuguese Prime Minister Antonio Costa called for his resignation but Dutch Prime Minister Mark Rutte backed Dijsselbloem to continue his job.
US Dollar
Sterling struck its highest level for almost a month versus the US Dollar yesterday, rising momentarily above key psychological resistance.
The ‘Greenback’ suffered initially as news that US President Donald Trump was struggling to pass a health reform bill hit newswires. Markets tumbled due to concerns that the 26 Republican representatives who oppose Trump’s medical bill could also unsettle the President’s future tax and fiscal policy plans. If Trump is unable to follow through on his pledges to overhaul the tax system and inject $1 trillion worth of stimulus into the economy then it is entirely likely that the US Dollar could correct lower.
Today’s session sees a speech from Federal Reserve Chairwoman Janet Yellen, which could influence currency markets if Yellen gives out any new information on the US central bank’s plans for rate policy in 2017. At present, two additional rate hikes are expected this year.
Canadian Dollar
The Pound to Canadian Dollar exchange rate softened slightly yesterday afternoon, despite a dip in demand for oil prices. Crude, Canada’s most lucrative export, tumbled -1.6% yesterday afternoon, briefly touching its lowest level since last year’s OPEC production cut deal. Traders reacted to news that US inventories increased by 4.5 million barrels last week, beating forecasts of 2.8 million barrels. The build suggests that oversupply is still an issue in the oil market.
Australian Dollar
Sterling touched a monthly high yesterday versus the Australian Dollar as Trump’s ability to boost global markets with fiscal stimulus was thrown into doubt. However, the Pound failed to hold onto its gains as slowing UK consumer growth bets weighed on British sentiment.
New Zealand Dollar
The Pound reached the best exchange rate against the New Zealand Dollar since the start of the year yesterday. Profit-taking took GBP/NZD lower throughout the day and the ‘Kiwi’ ticked slightly higher following the Reserve Bank of New Zealand’s decision to leave interest rates on hold at 1.75%.
Data Released
09:30 GBP Retail Sales (YoY) (FEB) Medium 3.20%
12:00 USD Fed’s Yellen Speaks at Community Development Conference High
15:00 EUR Eurozone Consumer Confidence (MAR A) Medium -5.8
21:45 NZD Trade Balance (New Zealand Dollars) (FEB) Medium 160m