Sterling
Demand for the Pound picked up yesterday ahead of the latest UK inflation report, which is due for release later this morning.
Inflation struck a three-year high of 2.3% in February and economists expect the index to remain at that level in March’s report. Some analysts fear that a reversal in food prices, which jumped rapidly in January due to the so-called ‘courgette crisis’, could push the figure lower. However, others believe that a raft of utility price hikes, alongside the continued impact of Sterling’s post-Brexit depreciation, will drive price pressures even higher. Although surging inflation is likely to constrain consumer spending levels and dampen economic growth, a high CPI print is liable to bolster the appeal of the Pound because it could persuade the Bank of England to raise interest rates sooner-rather-than-later.
Euro
The Pound to Euro exchange rate rallied by around half a cent yesterday as markets geared up for this morning’s UK CPI report.
Data released yesterday from Visa showed that monthly spending patterns dipped in March to bring credit card spending in the first quarter down to its lowest level since 2013. The cool down reflects fears that accelerating price pressures could stymie economic growth this year, however, Sterling was not negatively impacted on this occasion.
Concerns surrounding the French Presidential election intensified at the beginning of the week as markets noted that former outsider Jean-Luc Melenchon, the far-left candidate with designs to take France out of the EU, had overtaken conservative Francois Fillon in third place. The latest polls mean that two out of the three most popular candidates are campaigning on a platform of ‘Frexit’.
Although centrist Emmanuel Macron, who wants France to retain EU membership, is widely predicted to emerge victorious, the fact that pollsters got both Brexit and the US Presidential elections so wrong means that markets are likely to remain cautious in the build-up to the French vote.
US Dollar
‘Cable’ rebounded by around half a cent yesterday but remains capped at longstanding technical resistance.
The Pound’s inability to settle above resistance at the end of March / beginning of April suggests that GBP/USD may struggle to register any significant gains unless there is a material shift in outlook, i.e. a strong hawkish hint from the Bank of England or a message of dovishness from the Federal Reserve.
If the UK CPI report prints above consensus this morning then we could see Sterling trend higher, however, a disappointing result could have the opposite effect.
Canadian Dollar
The Pound to Canadian Dollar exchange rate remained flat yesterday as rising oil prices boosted the ‘Loonie’.
Sterling traded higher across the board during the morning but the Pound’s gains were cut short against the Canadian Dollar during the afternoon as traders reacted to a 1% increase in the price of crude oil. Canada’s most lucrative export rallied in response to another shutdown at Libya’s largest oilfield, which disrupted global supply.
Australian Dollar
Sterling appreciated by around 60 pips against the Australian Dollar yesterday as rejuvenated demand for the UK currency mixed with global risk aversion trends to send GBP/AUD higher. Markets remained cautious of investing in more volatile financial assets, such as the ‘Aussie’ Dollar, due to fears that last week’s US air strikes in Syria could lead to an escalation of the conflict.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate ended the day around the same levels that it opened yesterday as Sterling’s morning rally petered out in the afternoon.
Data Released
09:30 GBP Consumer Price Index (YoY) (MAR) High 2.3%
10:00 EUR German ZEW Survey (Economic Sentiment) (APR) High 14.8