Raphael Sonabend, FX Analyst
The GBP/EUR rate hit 1.2945 this morning, the highest rate since October 2008, as Carney’s words and the European Court of Justice’s ruling, created volatility that supported the pound to gain against all its peers. As UK inflation fell to a record low, Carney reassured traders that the UK’s falling prices should not be compared to the low inflation of the Eurozone. Earlier in the day the European Court of Justice ruled that QE can be legal in the Eurozone as long as certain rules are met, this should lead to an exciting week with the ECB conference on Thursday. Today’s focus will be on US PPI and unemployment claims at 13:30 and the Bundesbank’s President Weidmann speaking at 16:15.
GBP/EUR: Currently trading at 1.2933
As anticipated, volatility was seen in this pairing as a result of the Court’s ruling in the morning and Carney’s speech in the afternoon. The Court was due to rule on the legality of the ECB’s Outright Monetary Transactions policy (OMT) after Germany raised this issue previously. The Court ruled that quantitative easing is not only legal but may also be necessary, as long as some necessary conditions are met. Whilst this ruling was only preliminary and the final ruling isn’t for another six months, this is a green light for Draghi to announce the purchase of sovereign bonds at the next ECB meeting on Thursday. The euro strengthened slightly after this news however the pound soon recovered this lost ground and started to make gains of its own.
With no data of impact due out of either country today, our focus will instead be on Bundesbank president Weidmann speaking this afternoon. Due to speak on the ‘Outlook for the New Year’, there is the potential for euro strength if he speaks with hawkish sentiment. On the back of Carney’s words, we could see the pound make a dash for the 1.30 mark and today’s surge may not end on the rocks of disappointment.
GBP/USD: Currently trading at 1.5209
Sterling strengthened against the US throughout yesterday’s session, reaching a peak of 1.5268 (breaking the second resistance level), before falling and trading with sideways movement around the 1.5225 mark. Carney’s speech brought volatility as the pound spiked then fell as traders analysed his words. His main points included that the ECB is able to raise inflation and they should do all in their power to do so; the oil price slump is “net positive” for the UK economy however are a “negative shock” for Scotland and finally falling prices in the UK should not be compared to the low inflation of the Eurozone.
With no more data due out of the UK for the rest of the week, and US data forecast to drop off, Carney’s positive words could provide enough momentum for Sterling to continue to strengthen throughout.
EUR/USD: Currently trading at 1.1755
Significant volatility was seen in this pairing yesterday as the pair spiked and plummeted between 1.1846 and 1.1727. Initial euro strength was seen after the European Court of Justice’s ruling and this pair rose a cent. However the dollar managed to resist the euro’s gains shortly after breaking the 1.83 mark and on the back of mediocre US data the dollar advanced. Weak US retail sales data registered the biggest monthly slump in almost a year and some economists had to cut spending and growth forecasts as a result.
The dollar has been continuing to strengthen against the euro throughout this morning however this may be limited by poor US data forecast for this afternoon. This afternoon’s monthly PPI is predicted to fall from -0.2% to -0.3%, unemployment claims are forecast to rise to 299K from 294K and the Philly Fed manufacturing index is predicted to fall from 24.5 to 20.3.
GBP/AUD: Currently trading at 1.8487
A strong day for the pound yesterday saw the rate being pushed up by almost two cent. However today’s early morning Aussie employment data has seen all of these gains reversed. The number of people employed increased by 37,400 in December following a revised 45,000 increase the previous month, making it the biggest two-month gain for eight years.
With little data from either side of the pairing for the remainder of the week, we could see the pound reverse the Aussie gains on the back of Carney’s words.
GBP/NZD: Currently trading at 1.9658
The pound gained on the Kiwi throughout yesterday’s session, picking up speed after Carney’s optimistic words. Rising almost two cent, the pound’s advances were finally resisted around 1.976 and the Kiwi has since pushed back to 1.964.
With no data due out of either country for the rest of the week, this pairing’s movement will be influenced by US data. With figures set to worsen across the board, the pound could try to advance once again.
GBP/CAD: Currently trading at 1.8188
Carney’s words saw the pound hit month-highs against the Loonie as this pair reached 1.826 yesterday. Continued worries about an oil price slump saw the Loonie hitting record lows against its counterparts and Canadian 10-year bond yield hit its own record low.
As US data is forecast to decline today, the pound’s gains are likely to continue in today’s session and push on until the end of the week.
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