BoE’s Refusal to Rule out Negative Rates Weighs on Pound (GBP)
Comments from Bank of England (BoE) Governor Andrew Bailey prompted fresh volatility for GBP exchange rates yesterday.
Bailey refused to rule out the possibility of negative interest rates, and the sharper-than-expected dip in the headline UK consumer price index added to bets that the central bank could take action sooner rather than later.
However, an improvement in the UK’s manufacturing and services PMIs could lend Sterling some support today.
Euro (EUR) Bolstered by Hopes of Eurozone Covid-19 Crisis Common Fund
The mood towards the Euro improved as France and Germany proposed a common fund in order to reduce the impact of the Covid-19 crisis.
This move supported hopes of the currency union moving towards a greater state of fiscal union in the future, even though the plan is not yet approved.
An unexpected improvement in May’s Eurozone consumer confidence index offered additional support to EUR exchange rates.
Investors will now be focusing on the latest PMI data from the currency bloc and using it to assess how much impact the gradual reopening of economies has had on output.
US Dollar (USD) Fluctuates, Fed Fears Second Wave
The US Dollar fluctuated ahead of the publication of minutes from the Federal Reserve’s last policy meeting.
In the minutes the Fed discussed the possibility of a second wave of the coronavirus crisis and indicated that the US economy could come under strain into 2021 if a second wave does occur.
If today’s US PMI and jobless claims figures provide cause for concern it would increase the odds of the Fed taking further action to support the US economy.
Weaker Headline Inflation Drags on Canadian Dollar (CAD)
April’s Canadian consumer price index proved weaker than forecast, showing that the headline inflation rate had dipped from 0.9% to -0.2% on the year.
This left the Canadian Dollar on a weaker footing against its rivals as the risk of further Bank of Canada (BOC) policy action increased. A sharp monthly decline in wholesale trade sales added to the bearish mood.
The ADP employment change figure could pile further pressure on CAD exchange rates today if the labour market shows fresh signs of weakness.
Australian Dollar (AUD) Supported by PMI Improvement
The Australian Dollar rose overnight as Australia’s Services PMI rose from 19.6 to 25.5. Although the Manufacturing PMI declined (from 45.6 to 42.8) the improvement in the services measure meant that the composite index rose from 22.4 to 26.4.
New Zealand Dollar Benefits as RBNZ Pushes Back Against Negative Rates
Comments from Reserve Bank of New Zealand (RBNZ) policymakers supported NZD exchange rates yesterday. The central bank talked down the prospect of negative interest rates.
However, NZD could lose its positive footing if domestic retail sales data details a decline in consumer spending.