Sterling
With no significant new domestic data releases to contend with, Sterling traders mulled over news that Britons’ expectations for inflation ticked higher this month.
The latest YouGov poll showed that the public expects consumer prices to increase by 2.6% over the next 12 months, up from 2.5% previously. However, the figure is actually lower than the current rate of inflation (2.7%) and as such markets saw little reason to increase bets of an interest rate hike from the Bank of England following the report.
The big ecostat to keep an eye on today is the latest estimate of UK GDP growth in the first quarter. Markets are primed for the quarterly print to match previous estimates at 0.3% and the yearly figure to remain at 2.1%. If there are any upward revisions we could see demand for Sterling rise, while any downgrades would likely weigh on the Pound.
Euro
Sterling attempted to rally versus the single currency yesterday but the Euro proved resilient. By the end of the day GBP/EUR had softened by around a fifth of a cent, despite European Central Bank President Mario Draghi’s assertion that there was no need to deviate from the bank’s current set up of ultra-loose monetary policy.
Draghi noted that the Eurozone economy was becoming increasingly solid thanks to a ‘virtuous cycle of employment and consumption’, but concluded that ‘underlying inflation pressures remain subdued’.
US Dollar
‘Cable’ lost out on around half a cent during the London session yesterday ahead of the Federal Reserve’s minutes report from its meeting earlier this month.
The minutes revealed that policymakers were keen to ‘await additional evidence… that a recent slowdown in the pace of economic activity had been transitory’, which allowed Sterling to recoup its earlier losses versus the US Dollar. The cautious central bank statement prompted a reduction in June Fed interest rate bets and markets now anticipate a 79% chance of a 25-basis point hike next month, down from 83% prior to the minutes report.
Canadian Dollar
The Pound to Canadian Dollar exchange rate shed over 100 pips yesterday afternoon in a knee-jerk reaction to the Bank of Canada’s latest policy decision. The BoC left rates on hold at 0.50%, as expected, but the tone of Governor Stephen Poloz’ statement was considered more hawkish than in recent months.
As in previous statements, Poloz said that ‘the current degree of monetary stimulus is appropriate’, but this time the Governor added the term ‘at present’, which analysts perceived as a hint that policy could be tightened in the future. Indeed, the last time the BoC used this kind of language was in May 2015 and interest rates were altered just two months later.
Poloz also mentioned that the economy had almost completely adjusted to the oil price decline and noted that the labour market was robust. GBP/CAD tumbled to a one-month low following the statement.
Australian Dollar
Although Sterling strengthened by around a cent against the Australian Dollar during the Asia-Pacific session yesterday, GBP/AUD saw its gains erased during the London session. The ‘Aussie’ had come under pressure following news that Moody’s had cut China’s credit rating for the first time since 1989. The ratings agency downgraded Chinese debt from A1 to Aa3, citing expectations of slower growth and rising debt over the next few years.
The move raised concerns that softening Chinese economic output would lead to reduced demand for Australian exports.
New Zealand Dollar
Sterling declined by around 80 pips versus the New Zealand Dollar yesterday as traders responded positively to news that New Zealand’s dairy cooperative Fonterra had lifted the final milk payout for this season by 15 cents and forecast a 35-cent increase for the next season. Dairy produce is New Zealand’s most-lucrative export, meaning the ‘Kiwi’ often rises in tandem with dairy prices.
Data Released
09:30 GBP Gross Domestic Product (QoQ) (1Q P) Medium 0.3%
09:30 GBP Gross Domestic Product (YoY) (1Q P) High 2.1%
13:30 USD Advance Goods Trade Balance (APR) High -$64.5b