Sterling
With little domestic stimulus, the Pound managed to rally versus most of the majors yesterday. A range of factors – from an historic US corporation tax cut to lumber tariffs in Canada – impacted global currencies, subsequently trickling through to moves in Sterling pairs.
The UK currency has performed well since the announcement of snap elections, which analysts believe could give Tory Prime Minister Theresa May a larger majority victory, akin to Margaret Thatcher’s landslide victory in 1983. Latest polls put the Conservatives 23 points ahead of Labour, which is benefitting the Pound because traders believe a large majority will strengthen May’s hand in Brexit negotiations and avoid Britain falling back on damaging world trade organisation tariffs.
Euro
The Pound to Euro exchange rate appreciated by around 70 pips yesterday as investors locked in profit. The single currency registered gains of around 150 pips at the beginning of the week on bets that Eurosceptic Marine Le Pen would be soundly beaten in the final round of the French Presidential election, and it seems markets were happy to pause for breath yesterday and cash-in on the Euro’s recent surge.
The main event to look out for today is the European Central Bank’s policy announcement. ECB Chairman Mario Draghi is not expected to adjust policy at this juncture, but dark mutterings in the financial press suggest the ECB is starting to plan ahead for an eventual tapering of quantitative easing. If Draghi gives any concrete hints that policy could be tightened over the next 12 months then we could see demand for the single currency perk up.
US Dollar
US Treasury Secretary Steven Mnuchin confirmed yesterday that the Trump administration plans to slash corporation tax from 35% (the highest among developed economies) to 15% (joint 4th lowest). The move, labelled ‘the largest tax cut in US history’, is liable to boost company earnings and investor profits but could lead to a significant ballooning of the US budget deficit. If markets decide the tax cut will help bolster economic growth to the extent that rises in the deficit are acceptable then we could see the ‘Greenback’ start to rally. However, if traders judge the move to be too risky the US Dollar could suffer as debt sustainability issues enter the equation.
Canadian Dollar
Sterling strengthened by around half a cent against the Canadian Dollar yesterday, remaining close to seven-month highs as a multitude of factors weighed on demand for the ‘Loonie’.
CAD remained under pressure from news of US trade tariffs that could heavily penalise Canadian lumber exporters. The Canadian Dollar was also hurt by a downtick in oil prices, caused by an unexpected rise in US crude inventories. A domestic report showing that Canadian retail sales tumbled -0.6% in February compounded the ‘Loonie’s’ losses.
Australian Dollar
The Pound to Australian Dollar exchange rate surged almost two cents to strike its highest level since September 2016 yesterday.
The ‘Aussie’ suffered as markets reacted to a slightly weaker-than-expected Australian consumer price index report. The headline yearly inflation figure came in at 2.1%, compared to calls for 2.2%, while the quarterly score printed at 0.5%, down on forecasts of 0.6%. The current level of inflation is not expected to prompt a rise in interest rates from the Reserve Bank of Australia and subsequently the Antipodean currency is struggling to attract new buyers.
New Zealand Dollar
Sterling struck its strongest exchange rate versus the New Zealand Dollar since last July yesterday, jumping two cents as markets hedged against potential trade tariffs from the US. President Trump tweeted that he would ‘not stand’ for Canada’s perceived injustices against US dairy farmers, which was taken as a warning that the US administration could start taking measures to protect its national dairy industry. The ‘Kiwi’ Dollar was subsequently sold on fears that Trump could take aim at the largest exporter of milk in the world, New Zealand. Any moves to limit New Zealand’s dairy exports could seriously hamper economic growth and put pressure on the ‘Kiwi’.
Data Released
12:45 EUR European Central Bank Rate Decision (27 APR) High 0.00%
12:45 EUR ECB Deposit Facility Rate (27 APR) High -0.40%
12:45 EUR ECB Asset Purchase Target (APR) High EU60b
13:00 EUR German Consumer Price Index (YoY) (APR P) High 1.9%
13:30 USD Advance Goods Trade Balance (MAR) High -$65.5b
13:30 USD Durable Goods Orders (MAR P) High 1.3%