Raphael Sonabend, FX Analyst
Euro gains and dollar weakness were seen on Friday despite reverse trends being expected. The Fed member Lockhart, who is usually dovish in sentiment, was particularly hawkish as he said a rate hike could occur in June or July. In the Eurozone, the EU economic summit let nothing pass to reporters and news from the summit was limited. The highest impact data came from Canada, with monthly core CPI figures coming in line with forecast at 0.6% and CPI increasing from -0.2% to 0.9%. This strong figure has demonstrated how the negative effects of falling oil prices can stop impacting so strongly upon inflation. The main event today will be on Draghi’s speech at 14:00; due to testify on monetary policy, volatility can be expected as it always is when this sensitive topic is discussed.
GBP/EUR: Currently trading at 1.3790
- A quiet day on Friday saw slight euro gains throughout the day, closing the session just 10 pips below opening. Volatility was seen in the Asian markets over the weekend but this morning has opened with calmer trading.
- The main focus for today will be on Draghi’s testimony this afternoon, due to speak on monetary policy before the Economic and Monetary Affairs Committee, this could bring euro strength if he is more hawkish than usual. The UK’s CBI industrial order expectations figures this morning are forecast to fall from +10 to +9, which could see Sterling weakness.
GBP/USD: Currently trading at 1.4863
- The dollar fell against the majority of counterparts on Friday, despite the usually dovish Lockhart speaking with hawkish sentiment. Lockhart said he expects a rate hike in one of the June, July or September policy meetings; suggesting June or July is unusually hawkish for him.
- A quiet day ahead will centre on UK CBI industrial order expectations this morning before turning to existing home sales in the US. With UK data predicted to decline slightly and US figures forecast to improve, we may see the dollar recover the ground it lost on Friday.
EUR/USD: Currently trading at 1.0780
- Despite a quiet day on Friday, the euro managed to gain by almost two cent against the dollar in the afternoon, breaking above the 1.08 mark. Fed member Lockhart’s speech on Friday caused some volatility in the pairing, with the euro coming out on top.
- Another relatively quiet day awaits us today with ECB president Draghi’s speech in the early afternoon dominating the calendar. We expect to see some volatility in the pairing should Draghi discuss any important details in EU monetary policy. Later this afternoon also sees the release of US existing home sales data, and with the figure set to increase, we may see the greenback strengthen and regain some lost ground from Friday.
GBP/AUD: Currently trading at 1.9100
- Last week proved to be very volatile for the pairing with the overall trend in favour of the Aussie. This trend has continued with the Aussie finding over a cent this morning, currently trading around the 1.91 mark.
- With little in the way of announcements from either side of the pairing today, traders will be looking towards RBA Gov Edey’s comments tomorrow morning followed by UK and US CPI data which has potential to stir the market.
GBP/NZD: Currently trading at 1.9618
- Fairly range-bound trading was seen in Friday’s session with Kiwi gains posted in the morning before Sterling resistance kept further advances at bay. This morning has seen the NZD gain a cent and a half, possibly on the back of last night’s increase in Westpac consumer sentiment from 114.8 to 117.4. These gains seem unlikely to hold as the pound is already recovering these losses.
- This morning’s UK CBI industrial order expectations could prevent further Sterling gains as the figure is forecast to drop off slightly from +10 to +9. If the data improves above predictions, then pound strength should push on throughout the day.
GBP/CAD: Currently trading at 1.8719
- On Friday we saw Canadian retail sales registering a decline of more than expected in January, largely due to lower gasoline prices. Annual inflation held steady at 1 per cent matching expectations.
- With a quiet calendar before tomorrow’s UK CPI data, we expect today’s activity to be fairly range-bound.
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