Raphael Sonabend, FX Analyst
The Eurogroup meetings yesterday saw volatility throughout the markets, with particular impact on Sterling and euro pairings. A strong euro sell-off in favour of the pound saw Sterling gains against the dollar, which pushed the rate back towards 1.53 but momentum wasn’t quite enough to hold the pound’s newfound ground. Finance Minister’s (FinMin) agreed that another day of Eurogroup meetings will be necessary on Monday to reach any sort of conclusion and the majority of FinMin’s were optimistic that a satisfactory end will (eventually) be reached. In Brussels today, the Greek Prime Minister, Alexis Tsipras, will give his debut performance at an EU summit and analysts will be evaluating his every word. The Bank of England’s inflation report at 10:30 today will provide some insight into where the Bank sees the inflation and growth rate going in the next couple of years. Whilst we anticipate a negative report, it is unlikely to be pessimistic enough to pull the BoE out of the central bank vanguard to tighten monetary policy. Another day of uncertainty is likely to be seen and the dollar may fare better than the pound as US retail sales at 13:30 are forecast to strengthen.
GBP/EUR: Currently trading at 1.3444
- As brief reports and comments from the Eurogroup meetings were released throughout yesterday’s session, the pound pushed up against the euro and breached 1.35 before meeting resistance at 1.3536. The general consensus seems to be that whilst no conclusions have been made so far, negotiations should be able to end on Monday.
- Another volatile day can be expected today with the Bank of England inflation report this morning, accompanied by a speech from carney. Turning to the Eurozone, we have a second day of peace talks in Minsk as well as the EU economic summit in Brussels, Greece will be the topic on everyone’s minds. Whilst Greece have no plans to leave the Eurozone, there is the potential for them to be forced to leave the euro if they unilaterally default on the troika bailout programme.
GBP/USD: Currently trading at 1.5248
- Sterling straddled the line just below 1.53 but ultimately failed to breach this mark. Strong gains were seen yesterday morning across Sterling pairings but towards the late-afternoon the dollar recovered all lost ground and gained a cent on the pound.
- Trading today is likely to see risks to the Sterling downside as the BoE report today is unlikely to be optimistic and US data is predicted to be strong. US retail sales m/m is forecast to increase from -0.9% to -0.4% and unemployment claims are predicted to rise from 278K to 282K.
EUR/USD: Currently trading at 1.1336
- Volatile trading was seen in this pair yesterday as Finance Minister’s had differing opinions on the progress of the Eurogroup meetings. Greek FinMin Varoufakis sees it likely that negotiations will end on Monday and said there was absolutely no chance of Greece leaving Eurozone.
- Another day of uncertainty is expected as peace talks will continue in Minsk and the EU economic summit will turn to issues in Greece. With US data forecast to be strong, dollar gains are likely to continue throughout the day.
GBP/AUD: Currently trading at 1.9858
- The rate continued to move in sterling’s favour yesterday morning before finding resistance around the 1.98 mark during the afternoon session. This morning saw the Australian unemployment rate climbing to 6.4%, the highest figure since August 2002, and the Sterling/Aussie rate rose two cent and is now threatening to surpass the 2.00 mark. This employment report has reinforced the RBA’s decision to cut the rates and has also increased the probability that a second 25bp rate cut will occur. This places further importance on Governor Stevens’ speech this evening (at 22:30), which could inject further volatility into the market.
- Traders will be looking to decipher the UK inflation report this morning, which provides us with a 2 year assessment of the prospects for UK inflation over the following two years. This should cause some strong rate movement throughout the course of the day.
GBP/NZD: Currently trading at 2.0712
- Slow gains were made by the pound throughout yesterday’s session with added momentum seen in the early hours of this morning as poor Australian employment figures were released. Having temporarily breached 2.08, the Kiwi is now starting to recover lost ground.
- Focus for today will be on the BoE’s inflation report this morning. Alongside the report will be a letter from Carney to the Chancellor explaining why inflation has fallen below 1% of its target range and what will be done to address the situation. Insight into Carney’s plans could bring Sterling volatility if anything unexpected is seen.
GBP/CAD: Currently trading at 1.9148
- Yesterday saw a further fall in Crude towards 54.2, which led to Loonie weakness and Sterling strength before this pair met resistance around 1.936 as Crude (and therefore CAD) saw a slight reversal.
- Trading will centre around the Bank of England inflation report this morning and with pessimism expected, the Loonie may continue to recover lost ground throughout the day.
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