USD Exchange Rates Strong as Fed Policymakers Calm Market Fears after Stock Rout

Pound Exchange Rates Sink but Rebound as Cabinet Meets to Discuss Brexit Strategy

Market fears over Brexit dragged the Pound lower the start of the day yesterday, but by the end of the session Sterling had largely returned to positive territory.

Markets were awaiting the outcome is of a Cabinet meeting to discuss the UK’s negotiation strategies, with demand for GBP unsettled by an open letter from the British Chambers of Commerce (BCC) demanding more clarity from the government and claiming that business patience was wearing thin.

GBP/EUR Exchange Rate Inches Higher as Latest Eurozone Forecasts Remain Gloomy on Inflation Outlook

Focus was on upcoming speeches from US policymakers yesterday, meaning that the GBP/EUR exchange rate was able to crawl higher.

The latest European Commission Economic Forecast proved uninspiring as well. The report stuck to the usual trend seen recently in outlooks for the Eurozone, in that it predicted strong economic growth but subdued inflation.

This suggests that the strength seen in the Eurozone economy is unlikely to be translated into tighter monetary policy any time soon.

The European Central Bank (ECB) will publish its latest Economic Bulletin today. Signs that the ECB expects inflation to accelerate this year would lift the Euro, while predictions that the status quo will continue, or that price growth will slow, would allow GBP/EUR to make strong gains.

Federal Reserve’s Dudley Calms Market Fears over Stock Rout; GBP/USD Slides

The GBP/USD exchange rate slid lower yesterday, as Federal Reserve Bank of New York President William Dudley became the latest US policymaker to reassure markets that the recent tumble by the global stock markets wouldn’t impact the monetary policy outlook.

Markets had worried that the US$4 trillion wiped from equities could have a knock-on effect on corporate and personal consumption, creating a bump in the road for the US economy and therefore causing the Fed to tap the brakes on its plans to hike interest rates again.

As well as the US initial and continuing jobless claims figures today, Federal Reserve officials Patrick Harker and Neel Kashkari are due to give speeches today.

Building Permits Surge Boosts Canadian Dollar, GBP/CAD Drifts Lower

The strong rise in the number of building permits issued in Canada during December pushed the GBP/CAD exchange rate lower yesterday.

November’s sharp decline was revised lower to -7.3% and the number of building permits issued in the final month of 2017 grew 4.8% month on month, competitor forecasts for 2% growth.

A significantly smaller-than-expected increase in US crude oil inventories also supported the Canadian Dollar, as it signalled that US stockpiles would not be as extensive as predicted, which would have depressed demand in the future.

Canadian housing starts data for January and the new housing price index for December could help strengthen the Canadian Dollar today if they show robust conditions in the property market, which is an indicator of wider consumer confidence.

Focus on US and NZ Developments Keeps GBP/AUD Exchange Rates at Opening Levels

The Australian Dollar wasn’t on particularly strong form itself yesterday, so GBP/AUD exchange rate managed to hold opening levels.

Markets were still disappointed by the recent cautious outlook on monetary policy from Reserve Bank of Australia (RBA) Governor Philip Lowe.

Additionally, market focus on speeches from US policymakers and the latest New Zealand interest rate decision kept the Australian Dollar unappealing.

Markets will pay careful attention to a speech in Sydney from RBA Governor Philip Lowe today. Given that Lowe has already suggested monetary policy will not be tightened any time soon, it seems unlikely he will say anything today that could boost the Australian Dollar.

Approach of New Zealand Monetary Policy Announcements Enables GBP/NZD Gains

The GBP/NZD exchange rate was able to make mild gains yesterday, has markets kept away from the ‘Kiwi’ ahead of the latest monetary policy announcements from the Reserve Bank of New Zealand (RBNZ).

John Cameron

John studied economics at Cambridge University and later became an MSTA qualified Technical Analyst. He began working for TorFX almost a decade ago and now holds a Senior Account Manager position. As well as lending his clients support and guidance, John has produced market commentary and detailed exchange rate analysis for a number of online publications.

Contact John Cameron