Pound (GBP) Rallies on BoE Rate Rise Expectations
The Pound (GBP) surged higher yesterday after stronger-than-expected wage growth boosted Bank of England (BoE) interest rate rise bets.
With the BoE keen to prevent inflationary pressures becoming embedded, yesterday’s high average earnings reading raised expectations that policymakers will opt for another rate hike at the bank’s meeting in two weeks’ time.
Earlier this morning, UK headline inflation eased as forecast. However, core inflation unexpectedly held at the same level. Trade in the Pound currently seems mixed as worries about the impact of inflation on the UK economy offset a rise in BoE rate rise bets.
Euro (EUR) Sheds Gains after Rumours of ECB Slowdown
The Euro (EUR) initially strengthened yesterday after Germany’s ZEW economic sentiment index smashed forecasts. The indicator rose to positive territory for the first time since Russia invaded Ukraine in February 2022.
However, the common currency slumped in the afternoon amid rumours of a dovish tilt at the European Central Bank (ECB). Bloomberg reported that policymakers are considering a slower pace of rate hikes following February’s meeting. As markets repriced rate rise expectations, EUR tumbled.
Unless the Eurozone’s final inflation rate differs from the preliminary reading, it may not cause much movement today. Instead, any news about the Russia-Ukraine war may drive EUR exchange rates.
US Dollar (USD) Dragged Down by Falling Treasury Yields
A gloomy market mood saw the safe-haven US Dollar (USD) make early gains during yesterday’s session.
However, a sharp drop in US Treasury yields – seemingly prompted by a larger-than-forecast easing of Canadian inflation – saw the ‘Greenback’ turn south in the afternoon.
Today’s focus for USD investors will be America’s latest PPI reading and retail sales report. With both releases expected to show declines, a pullback in Federal Reserve rate rise bets could dent USD.
Canadian Dollar (CAD) Shored Up by Oil Prices
The Canadian Dollar (CAD) was mixed yesterday. Rising oil prices lifted the crude-linked currency against its weaker peers, while a drop in Canadian inflation put some pressure on the ‘Loonie’.
Canada’s PPI reading today is expected to show a second consecutive decline in producer prices. This could further dent Bank of Canada (BoC) interest rate rise bets, thereby dampening the Canadian Dollar’s appeal.
Australian Dollar (AUD) Rises amid Risk-On Mood
The Australian Dollar (AUD) gained ground in overnight trade as an upbeat market mood supported the risk-sensitive ‘Aussie’.
New Zealand Dollar (NZD) Firms amid Cheery Trade
Likewise, the riskier New Zealand Dollar (NZD) firmed during last night’s session amid the bullish tone among investors.