Raphael Sonabend, FX Analyst
The pound gained against all of its peers yesterday as UK inflation fell to 0.5%. After days of Sterling weakness the pound received support and bounced back against counterparts. This CPI result signifies the first time in the MPC’s history that the head of the Bank of England has had to write a letter to the Chancellor detailing the cause of this fall in inflation. Sterling saw a ‘buy the fact’ reaction after traders possibly anticipated a lower result, especially as few analysts think CPI has hit its low. Today’s trading will focus on Carney’s comments on the financial stability report, which will be released shortly after US retail sales figures. A volatile day can be expected as Carney’s words tend to bring speculation.
GBP/EUR: Currently trading at 1.2886
UK inflation held the focus for yesterday’s trading and it certainly did not disappoint. Predicted to drop off from 1.0% to 0.7%, CPI actually fell to 0.5%. Having fallen more than 1.0% below target, Carney now has to write a letter to the chancellor explaining the reason for this fall and what the bank will do to about it. The pound gained a cent on the euro immediately after this result and this is a strong sign of optimism in the economy as traders focused on the benefits of low inflation and not the negatives of deflation.
With no data out of either country today, our focus will be on Carney speaking this afternoon. Volatility is usually seen around Carney’s speeches and after yesterday’s low figures we expect this trend to continue.
GBP/USD: Currently trading at 1.5182
In anticipation of yesterday’s inflation figures, Cable fell to 1.5076 however it recovered all lost ground once the data was released. The pound continued to gain throughout the day and climbed almost another half cent in this morning’s session. Yesterday’s US JOLTS job openings figures, which exceeded expectations and registered at 4.97M from 4.83M, were overshadowed by UK CPI data and were unable to resist Sterling gains.
A volatile afternoon is likely to be seen within this pairing as US retail sales are being released shortly before Carney’s comments on the most recent financial stability report. As monthly retail sales are forecast to drop off from 0.7% to 0.2% and yesterday’s CPI data was received positively, we could see the pound’s gains continue throughout the day.
EUR/USD: Currently trading at 1.1775
After a fairly range bound start to the week for the pairing, an important day in the forex calendar may bring some volatility for the two currencies. This morning’s European Court of Justice Ruling has already caused some movement in the market as the Court ruled that the ECB sovereign bond-buying plan is legal but “some conditions may need to be met”.
Important figures out of the US later today are also expected to influence the markets. Retail sales announced this afternoon are set to drop off, so we may see the greenback weaken and thus halt its advance against the Euro for the rest of the afternoon.
GBP/AUD: Currently trading at 1.8662
No data out of Australia yesterday saw this pairing trade with sideways movement. The UK CPI figures barely affected this pairing and trading was fairly level throughout the day. In the early hours of this morning the pound gained two cent on the Aussie, possibly due to a late Aussie sell-off after yesterday’s UK data.
Today’s trading will focus around Carney’s speech this afternoon and we therefore anticipate volatility in this pairing. US data is also likely to affect and the Aussie may therefore weaken later in the day.
GBP/NZD: Currently trading at 1.9637
The pound gained two cent against the Kiwi yesterday after UK inflation fell to 0.5%. New Zealand data has been relatively light recently and this pair has traded heavily on the back of UK releases.
This trend could be amended tonight as NZ house price index data is due to be released. This will be the first NZ release that could influence this pair and it will therefore be watched with anticipation. Carney’s speech will hold our focus for the afternoon and volatility is likely to ensue.
GBP/CAD: Currently trading at 1.8195
With a fall in UK inflation yesterday, the pound continued on its advance. The news brought optimism, rather than fears of deflation, tilting more in Sterling’s favour.
Today investors will be wired in to Governor Carny’s speech, hoping to gather a more in depth outlook. The only other news comes by the way of US retail sales, which is being predicted to decline. As a result we expect the pound to continue to strengthen.
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