Sterling
Sterling drifted along versus the majors without any fresh domestic drivers yesterday. It’s been a slow start for currency traders, who appear to be sitting on the sidelines ahead of the Bank of England’s ‘Super Thursday’ announcements. Investors do not expect the UK central bank to alter monetary policy at this juncture, but traders are hoping for clues on future policy direction. British inflation recently struck a three-and-a-half-year high of 2.3% and is liable to rise further over the next 12 months as the impact of Sterling’s post-Brexit depreciation drives import costs higher. Ordinarily, this would be enough to tempt the BoE into raising rates, but with the British economy clouded in Brexit uncertainty there is every chance that policymakers will strike a cautious tone.
Euro
The Pound to Euro exchange rate rallied by around half a cent to strike its highest level of the month yesterday.
The latest moves mean that GBP/EUR has largely recovered from the impact of the French Presidential elections. The single currency surged towards the end of April as it became clear that anti-EU candidate Marine Le Pen was going to struggle in the final round of the vote, and the Euro initially rallied on Sunday evening when it was announced that pro-European centrist Emmanuel Macron had won. However, the Euro has since fallen back and technical trading patterns appear to favour Sterling strength going forward.
One theory for why the Euro’s post-French election rally fizzled out so quickly is that, with this layer of political uncertainty removed from the equation, traders have returned to a popular trend of swapping Euros for higher-yielding currencies. The price of stability!
US Dollar
Despite market pricings suggesting an 88% chance of a rate hike from the Federal Reserve next month, the Pound continued to trade close to its highest exchange rate versus the US Dollar since last September. Sterling is on a bullish run that has taken it higher by over six cents in the last month and we could see GBP/USD break higher later in the week if Bank of England policymakers strike a hawkish tone at May’s central bank meeting.
The one semi-important US ecostat yesterday showed that JOLT job openings remained unchanged at 5.74 million in March, beating estimates of 5.72 million, however this was not enough to send the ‘Greenback’ higher against the Pound.
Canadian Dollar
The Pound to Canadian Dollar exchange rate climbed by around a third of a cent yesterday as Sterling maintained bullish momentum against the commodity-correlated ‘Loonie’. Oil prices, Canada’s largest export, ticked slightly lower yesterday, and economic prospects in the region remained constrained by the threat of protectionist trade tariffs from US President Donald Trump.
Australian Dollar
Sterling surged by another 130 pips against the Australian Dollar yesterday to strike a new eight-month high as traders reacted to a surprise contraction in Australian retail sales. Sales volumes dropped -0.1% in March, it was reported yesterday, bringing the quarterly retail index down from 0.7% to 0.1%.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate shuffled higher by around a cent yesterday ahead of this evening’s policy announcement from the Reserve Bank of New Zealand, where rates are expected to be left on hold at 1.75%. We could see the ‘Kiwi’ recover if the RBNZ surprises markets with talk of tightening policy, while dovish rhetoric could drag the Antipodean currency back towards 10-month lows.
Data Released
12:00 EUR ECB’s Draghi Speaks in Dutch Parliament High
22:00 NZD Reserve Bank of New Zealand Rate Decision (MAY 11) High 1.75%
23:00 NZD RBNZ’s Wheeler news conference on policy statement High