Raphael Sonabend, FX Analyst
Yesterday’s trading focused around a slight dollar sell-off and global risk appetite decreasing as a result. A quiet day in terms of data yesterday saw the highlights of the day being the release of the Canadian business outlook survey and the new FOMC member Lockhart speaking in the afternoon. The Canadian outlook was fairly negative due to falling oil prices impacting upon the energy sector and the Loonie fell as a result. Lockhart’s words failed to impact upon the dollar which weakened throughout the day. Today will focus on the UK CPI, which will be released at 09:30. Forecast to fall from 1.0% to 0.7%, Sterling weakness is likely to be seen in the near-term as traders weigh in the possibility of deflation.
GBP/EUR: Currently trading at 1.2786
The pound gained almost a cent on the Euro yesterday as no data was released from either the UK or Eurozone. After breaking the 1.284 mark, the pound met resistance and the Euro began to resist Sterling’s advances. Weak monthly German WPI data this morning failed to impact upon this pairing and the pound continued to weaken in anticipation of this morning’s CPI release.
UK inflation today is predicted to fall to 0.7% from 1.0%. This result will lead Carney to write an open letter to the chancellor explaining why inflation has fallen more than 1.0% below the target rate. Traders will pore over this letter for details of why inflation has fallen so low and when we can expect a recovery. Whilst the first question is simpler to answer, as oil continues to fall so too does CPI, the second will take priority as traders concerns grow over the looming risk of deflation. Low CPI may be a good thing for consumers in the near-term but we still anticipate Sterling weakness immediately after the actual result is released.
GBP/USD: Currently trading at 1.5122
The 2015 members of the FOMC comprise a much more dovish flock than those of 2014. With Fisher and Plosser having left the committee, the last two hawks have flown the coop and only doves remain. The newest addition to the team, Dennis Lockhart (another dove), has wasted no time in spreading his wings and adding his opinion of monetary policy into the mix. Surprisingly perhaps, he displayed hawkish sentiment. Lockhart stated that interest rates should be risen in the middle of this year, regardless of where inflation may lie. He said the economy “is hitting on all cylinders” and remained confident about all future indicators. Cable rose yesterday as the pound started to recover against the dollar’s attacks and Lockhart’s words provided little impact.
This morning’s trading will focus around the UK’s CPI release before our attention turns to US data in the afternoon, with the highlight being JOLTS job openings. With UK CPI forecast to fall to 0.7% and US job openings predicted to rise from 4.83M to 4.86M, the USD is likely to strengthen against the pound.
EUR/USD: Currently trading at 1.1821
A day of two halves yesterday as the dollar gained a cent on the euro in the morning before the euro recovered all lost ground in the afternoon. Slight dollar strength was seen after Lockhart spoke yesterday afternoon however the euro’s gains could not be stopped.
This morning’s German WPI figures saw slight euro weakness but this data tends to be of little impact and we anticipate this won’t affect for long. The dollar’s gains are likely to extend into this afternoon’s session as strong US data is forecast and the euro could fall on the back of UK inflation figures.
GBP/AUD: Currently trading at 1.8510
Weaker than expected Aussie home loans data and another dip in oil prices were contributing factors for the reduced demand for commodity currencies such as the Aussie yesterday. We therefore witnessed the rate climb to 1.863 yesterday afternoon.
In anticipation that the pound will take a tumble following UK CPI data this morning, we have already started to witness a Sterling sell-off resulting in a reversal of most of yesterday’s gains.
GBP/NZD: Currently trading at 1.9447
As the dollar weakened in yesterday’s session, so too did global risk appetite and the Kiwi fell almost five cent against the pound. Opening the day at 1.9358, this pair closed just under two cent higher at 1.9526. This morning has seen trading in favour of the Kiwi in anticipation of this morning’s CPI release.
The Kiwi’s gains should continue today as UK CPI is forecast to fall below 1.0% and US data is predicted to be strong.
GBP/CAD: Currently trading at 1.8112
The pound gained two cent against the Loonie yesterday as the Bank of Canada’s business outlook survey showed a poor outlook for businesses linked with the energy sector. Current conditions and sentiment have remained strong across the board and confidence in the US economy has become ever more optimistic. However traders tend to be forward-looking and a negative outlook takes precedent therefore the Loonie weakened throughout the day.
This morning has seen the CAD resist further Sterling gain’s in anticipation of this morning’s CPI release and these advances are likely to continue throughout the day.
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