Sterling
In a week so far devoid of significant domestic data releases, the Pound has managed to drift higher versus most of the majors. Today’s ‘Super Thursday’ policy announcement from the Bank of England could either push Sterling even higher or prompt a swift revaluation of the Pound, depending on how hawkish the message.
In March traders were wrong-footed by policymaker Kristin Forbes’ decision to vote for higher rates. She was outvoted 8-1 on that occasion, but rising consumer prices and hawkish murmurs from other members of the rate-setting team have stoked optimism among the Sterling bulls. The Pound could push to multi-month highs against some of the majors if the BoE report strikes a hawkish chord, however, we could easily see Sterling slip back if policymakers talk down inflation and rate rise prospects.
Euro
The Pound to Euro exchange rate touched a 20-day high yesterday as markets digested dovish remarks from European Central Bank President Mario Draghi.
Facing criticism from Dutch MPs over the ECB’s extremely loose stance on monetary policy, Draghi insisted ultra-low interest rates and quantitative easing measures were, and are still, needed to help steer the currency bloc away from the dark days of the debt crisis. The ECB Chief noted that loose policy had created 4.5 million jobs and showed little signs that the central bank was considering removing stimulus anytime soon.
In addition to today’s headline BoE statement, GBP/EUR sentiment could be influenced, to a lesser extent, by March’s industrial production report. Factory output is predicted to have slowed from 2.8% to 1.9%, which could put a little bit of pressure on the Pound.
US Dollar
Sterling rallied against the US Dollar yesterday morning as traders reacted to news that US President Donald Trump had fired FBI director James Comey.
Comey had been investigating Trump’s 2016 Presidential election campaign’s possible collusion with Russia and commentators voiced concerns that the FBI director’s sacking may have been politically motivated. Traders noted similarities between the shock firing and the so-called ‘Saturday Night Massacre’ of 1973, when President Nixon sacked Watergate special prosecutor Archibald Cox. After meddling with the judicial process, Nixon ended up resigning and investors sold the ‘Greenback’ to hedge against a similar scenario in the United States today.
The ‘reflation trade’, is underpinned by expectations of tax cuts and infrastructure spending from the Trump administration. Anything that undermines the ‘reflation trade’ is liable to damage the appeal of the US Dollar.
Canadian Dollar
The Pound tumbled by around a cent versus the Canadian Dollar yesterday as surging oil prices improved demand for the commodity-sensitive ‘Loonie’. US crude stockpiles were reported to have tanked 5.25 million barrels last week, outpacing expectations of a 1.8 million decline. The news sent shockwaves around oil markets and drove crude higher by around 4% on the day.
Australian Dollar
Sterling reached a new eight-month high against the Australian Dollar but fell back during the London session as profit-taking kicked in. Despite the day’s slide, GBP/AUD remains 15 cents higher than it was mid-way though March.
New Zealand Dollar
The Pound drifted lower by around a cent against the New Zealand Dollar yesterday. However, the Reserve Bank of New Zealand announced that it was leaving interest rates on hold at 1.75% in May, with the intention of remaining accommodative for a considerable period. GBP/NZD surged by two cents following the news, striking a new 10-month high in the process.
Data Released
09:30 GBP Industrial Production (YoY) (MAR) Medium 1.9%
09:30 GBP Manufacturing Production (YoY) (MAR) Medium 3.0%
12:00 GBP Bank of England Rate Decision (MAY 11) High 0.25%
12:00 GBP BOE Asset Purchase Target (MAY) High 435b
12:00 GBP Bank of England Inflation Report High