Pound Sterling Sturdy as Traders Weigh BoE Rate Hike Probability
Demand for the Pound improved yesterday following a week of soft private sector PMI prints.
Sterling posted minor gains against some of the majors, in what appeared to be a sign that some traders are happy to put the June slowdown down to political uncertainty surrounding the general election.
While those bullish on Sterling believe that the Bank of England will be forced to start hiking interest rates soon in order to combat inflation, the bears feel that the uncertainty of Brexit and a hung parliament will prevent the BoE from throwing a spanner in the works with tighter policy.
GBP/EUR Slides -50 Pips to Weekly Low as ECB Signals Desire to Remove Stimulus in the Future
The Pound to Euro exchange rate slumped to a weekly low yesterday, depreciating half a cent in reaction to some surprisingly hawkish statements in the European Central Bank’s latest minutes report.
The ECB communiqué showed that policymakers were thinking about slowly removing stimulus but were concerned that markets could overreact, thus artificially tightening monetary conditions.
Policymakers discussed removing the bank’s commitment to boosting its €2.3 trillion quantitative easing scheme if necessary, but decided against altering policy at this stage because inflation remains below-target.
The single currency rallied across the board following the minutes report, however, the ECB appears to be tip-toeing towards tapering QE and it could be long time before the central bank actually begins to wind down its stimulus programme.
GBP/USD Rallies 30 Pips Ahead of US Non-Farm Payroll Report
‘Cable’ strengthened by around a third of a cent yesterday as a mixed bag of US data did little to bolster demand for the US Dollar ahead of this afternoon’s non-farm payrolls report.
The headline index of American services activity, the ISM non-manufacturing composite, jumped from 56.9 to 57.4 in June but it was not enough to drive the ‘Greenback’ higher. Meanwhile, the ADP employment change report, considered the little brother to this afternoon’s big-hitter: the NFP, saw job gains slump from 230,000 to 158,000.
The result marked a disappointment on expectations of 188,000 and caused some traders to reduce their projections for the payrolls report.
However, the median market consensus is that the highly influential NFP report will feature job gains of around 177,000 in June, up from 138,000 in May. This could breathe life back into Federal Reserve rate hike bets and send the Dollar higher.
On the other hand, an underwhelming print of 130,000 or lower could heap pressure on the ‘Greenback’ and allow GBP/USD to rally through psychological resistance.
Pound to Canadian Dollar Exchange Rate Ticks Higher as Speculators Bet that BoC Will Only Hike Twice
The Pound to Canadian Dollar exchange rate ticked higher by around a third of a cent yesterday as speculative investors bet that the Bank of Canada would not raise interest rates by more than 50 basis points in the foreseeable future.
The ‘Loonie’ appreciated across the board when BoC Governor Stephen Poloz indicated that the two rate cuts since 2015 had largely done their job, but the rally has since run out of steam, suggesting that it will take another hawkish push to drive CAD higher.
The main problem facing the commodity-correlated currency is the fragility in the oil market, which could see the North American nation’s most-lucrative export decline in value over the next 6-12 months.
GBP/AUD Rises 80 Pips Ahead of UK Manufacturing Production Print
Sterling surged by around 80 pips yesterday to strike its highest level in almost a month against the Australian Dollar. And we could see GPB/AUD post further gains if this morning’s UK manufacturing production report jumps from 0.0% to 0.9%. Private sector data has cooled recently, but a half-decent production print could give the Pound a leg-up.
Pound to New Zealand Dollar Strengthens Following Testing Week
The Pound to New Zealand Dollar exchange rate increased in value by around 70 pips yesterday as traders put their faith in Sterling following a testing week.
BoE rate hike bets will not die down, due to the recent hawkish shift in central bank commentary, however, there are still many investors who do not believe tighter policy is imminent in the UK.
Data Released
09:30 GBP Manufacturing Production (YoY) (MAY)
09:30 GBP Visible Trade Balance (Pounds) (MAY)
13:30 USD Change in Non-farm Payrolls (JUN)
13:30 CAD Unemployment Rate (JUN)
13:30 USD Unemployment Rate (JUN)