Sterling
The Pound rallied against some of the majors yesterday as markets responded positively to news that Chancellor of the Exchequer Philip Hammond managed to hit his budget target for the 2016⁄17 financial year.
Public sector net borrowing came in at £52 billion last year, 28% down on 2015⁄16 and its lowest level since the start of the financial crisis in 2007⁄08. However, March’s borrowing index actually printed at £4.4 billion, outpacing estimates of £1.5 billion, and the deficit is expected to increase further this year as higher inflation drags on economic growth.
Euro
Euro sentiment continued to improve yesterday as investors remained buoyed by the French Presidential first round results.
Centrist Emmanuel Macron is seen beating far-right Marine Le Pen 61%-39% in the second round of votes and, although pollsters have not always been accurate in the last 12 months, traders are fairly confident that Le Pen’s anti-EU policies will not make it to the Élysée. GBP/EUR tumbled by around half a cent due to the optimistic mood among European traders and Sterling could cede further ground to the single currency if Macron does indeed emerge victorious.
On the other hand, there is potential for the Euro to fall back slightly if support for Le Pen is seen growing and we could see a massive depreciation in the single currency if the anti-EU leader were to shock markets with another victory for nationalist populism.
US Dollar
The Pound managed to appreciate by around 50 pips against the US Dollar yesterday as data favoured GBP/USD.
While Sterling benefitted from the symbolic victory of the UK government hitting its 2016⁄17 deficit targets, the ‘Greenback’ was impacted by a pullback in US consumer confidence. Dipping from 125.6 to 120.3, missing forecasts of 122.5, the index of American consumer sentiment softened as the outlook for business, employment and income deteriorated slightly.
Demand for the US Dollar was also hampered by fears that partisan disagreements could lead to an embarrassing Federal shutdown later on this week. Congress must pass a spending bill with the help of at least eight democrats or public funds will be locked away, potentially sapping economic growth and reducing Federal Reserve rate hike bets.
Canadian Dollar
Demand for the Canadian Dollar softened yesterday as growth prospects were hurt by the rekindling of a lumber trade dispute with the US. The American government slapped expensive tariffs of between 3%-24% on Canadian lumber companies in a repeat of a move in the early 2000s that cost the Canadian economy around 15,000 jobs. The unsettling news sent GBP/CAD higher by around a cent to a fresh September 2016 high.
Australian Dollar
The Pound appreciated by over a cent against the Australian Dollar yesterday, remaining close to 2017 highs, as traders hedged their bets following the US-Canadian lumber tariff announcement. Investors said the protectionist trade tariff set a negative precedent and risk-related currency suffered as anxieties over future trade tariffs intensified.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rallied by over 250 pips yesterday to strike its highest level since August of last year as global risk sentiment soured following news of US trade barriers being imposed on Canadian softwood. The protectionist policy sparked fears that other nations could suffer damaging trade tariffs from the Trump administration.
Data Released
13:30 CAD Retail Sales (MoM) (FEB) Medium 0.2%