Pound Sterling Sturdy as Bank of England Tightens Credit Conditions
Bank of England Governor Mark Carney announced yesterday that British banks would need to hold an extra £11 billion of capital reserves to insulate against an adverse shift in economic conditions.
The move gave Sterling a little bit of a leg-up because the tightening of credit conditions was seen as a sign of confidence in the UK economy. However, on the other hand, the increase in capital requirements would most likely push loan prices up slightly, which would subsequently take a little heat out of the credit market and negate the need for a near term rate hike. The differences in interpretation prevented the Pound from registering any significant gains during Carney’s financial stability report speech.
Pound to Euro Exchange Rate Slides -60 Pips As ECB President Mario Draghi Softens Stimulus Rhetoric
The Pound to Euro exchange rate skidded -60 pips to a weekly low yesterday following a speech from European Central Bank President Mario Draghi during the morning.
Speaking in Portugal, Draghi said that reflationary pressures in the Eurozone were building and put this down to the ECB’s large-scale asset purchasing scheme, which the central banker said accounted for 1.7% of the 3.6% economic growth recorded since the quantitative easing programme began in January 2015.
The crux of the statement, however, was related to Draghi’s shift in wording. Having previously called for ‘very substantial’ stimulus, this time out the ECB President talked of a ‘considerable degree’ of stimulus being needed. This slight shift in rhetoric was seen as a sign that policymakers were getting closer to a time when QE could be unwound and this sent the single currency higher versus Sterling.
GBP/USD Rallies to Three-Week High as IMF Criticises Trump Economic Policy
Sterling managed to appreciate by around 70 pips to strike a three-week high versus the US Dollar yesterday following a damning report from the International Monetary Fund.
The IMF cut its 2017 US growth forecast from 2.3% to 2.1%, and its 2018 projection from 2.5% to 2.1%, citing a gap between Trump’s economic policy intentions and its likely results. The report noted that a lack of detail in the US government’s plans made it difficult to see growth advancing as anticipated, with a disproportionate amount of spending cuts appearing to fall on low and middle income households.
A separate report saw US consumer confidence jump from 117.6 to 118.9, beating estimates of 116.0. A rise in labour market perceptions accounted for an increase in current conditions, while optimism remained close to a 16-year high. However, the upbeat report failed to give the ‘Greenback’ a lift.
Later in the day the US Dollar suffered following a remark from Federal Reserve Chairwoman Janet Yellen suggesting US asset values were overpriced. The Fed Chair did not alter her projection for a ‘gradual rise’ in interest rates.
Rising Oil Prices Send Pound to Canadian Dollar Mildly Exchange Rate Lower
Crude oil, Canada’s most-lucrative export, rose for a fourth consecutive session yesterday, taking the commodity-correlated ‘Loonie’ higher with it.
Oil prices increased as the US Dollar depreciated yesterday because oil is priced in US Dollars and a lower currency makes oil cheaper to foreign buyers.
Pound to Australian Dollar Exchange Rate (GBP/AUD) Ticks Higher as Sturgeon Delays Indyref2
Sterling rallied by around a cent versus the Australian Dollar yesterday afternoon with some analysts attributing the move to a shift in Scottish politics. Scottish National Party leader Nicola Sturgeon announced yesterday that Scotland would not be seeking a second independence referendum in the autumn of 2018 or the spring of 2019, as previously planned. Instead, first minister Sturgeon said that a second vote was ‘likely’ by 2021. The news bumped Sterling higher as it was seen to slightly increase the chances of a cross-party Brexit team joining forces to attempt to keep the UK in the EU single market.
Pound to New Zealand Dollar (GBP/NZD) Jumps Two Cents from Four-Month Low
The Pound to New Zealand Dollar exchange rate struck its lowest level for almost four-months yesterday before rebounding during the afternoon as profit-taking kicked in. GBP/NZD rallied by over two cents from its March 3 low.