Raphael Sonabend, FX Analyst
The pound has seen strong gains throughout the week as trading was anticipation of the Bank of England inflation report yesterday. Whilst analysts were split on how confident the report would be, Sterling bulls would have been satisfied with Carney’s optimism. A confident outlook signals a pick-up in earnings as well as inflation recovering to hit the 2% target within two years’ time. Across the pond, the dollar has been suffering from a week of over-ambitious forecasting, causing traders to feel let down. Trends continued as US retail sales data missed forecasts yesterday and unemployment claims rose well above predictions. With little data out today, our focus will be on Canadian manufacturing sales at 13:30 and US preliminary consumer sentiment survey at 15:00. After a strong day for oil yesterday and Canadian figures predicted to improve today, we may see Loonie gains push through the weekend. The US survey is forecast to improve slightly but after this week’s poor figures, a strong increase will be needed to restore confidence.
GBP/EUR: Currently trading at 1.3455
- The Bank of England inflation report was more optimistic than expected and as a result the pound strengthened against the euro. As anticipated, Sterling’s reign of strength failed to hold and the day’s session closed at 1.3489, barely above the open at 1.3471. The BoE expect 2015 to register the fastest growth since 2006, aided by low oil prices. Acknowledging the downside risks of the oil price slump, Carney said that inflation could fall below zero.
- Strong German preliminary GDP this morning, coupled with equally strong French preliminary non-farm payrolls data, has seen the euro continue to gain lost ground against Sterling. The euro may therefore continue to gain on the pound for the rest of the day as no more data is due.
GBP/USD: Currently trading at 1.5384
- The pound gained on the dollar throughout yesterday’s session as a confident BoE inflation report, coupled with poor US retail sales data, saw this rate climb from 1.5209 to 1.5414. Retail sales saw a slight climb to -0.8% from -0.9%, but this was below the expected -0.4%. Unemployment claims also posted a poor figure, rising from 279K to 304K.
- Hopes of a dollar recovery will be pinned on the preliminary UoM consumer sentiment survey this afternoon. Forecast to increase slightly from 98.1 to 98.2, the dollar will need a stronger result than that to recover significant lost ground.
EUR/USD: Currently trading at 1.1427
- The euro managed to further strengthen against the dollar yesterday as disappointing figures came out from across the Atlantic in the form of increased jobless claims and lower retail sales. The euro has started on a stronger footing today with German GDP figures announced this morning coming in at 1.6%, which was stronger than anticipated.
- The most important data out today is the US consumer sentiment survey this afternoon; however with it set to rise only slightly by 0.1, we expect an otherwise quiet day of trading. Unless Euro bulls are struck down by Triskaidekaphobia in today's session, euro gains are likely to prevail.
GBP/AUD: Currently trading at 1.9854
- The UK inflation report injected further confidence into the UK economy yesterday and the rate was pushed through the 2.00 mark by early afternoon. After a Pavlovian response from traders, Sterling gained against all counterparts, before the rate cooled off slightly and settled around 1.99.
- In the short-term, we expect that the Aussie has weathered the worst part of this storm and that the pairing will be subject to less volatility for the remainder of this month. With no data scheduled from either country today, the rate should continue to trade within a tight range.
GBP/NZD: Currently trading at 2.0682
- Volatility was seen in this pair yesterday as the BoE inflation report pushed the rate up to 2.0856 before the Kiwi resisted Sterling gains and the rate fell back down to 2.0544. Level trading eventually ensued around 2.071.
- With no data due out of either country, this pair will be dependent on US figures. If preliminary consumer sentiment falls far from predictions, further volatility could be seen.
GBP/CAD: Currently trading at 1.9242
- We witnessed a lot of volatility in yesterday’s session during a wave of UK reports. Confidence was seen as Carney said headlines on inflation, caused by the unexpected drop in energy prices, masked an underlying stronger economy. Loonie strength was boosted in the afternoon as oil prices breached 60.0.
- This afternoon’s key data comes in the form of Canadian manufacturing sales figures, which has been forecast to rise. This would give the Loonie some much needed support as the week comes to a close.
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