RedFX: GBP Super Thursday weakens Sterling - US data ahead
GBP: Volatile, ending lower, as today saw the ‘Super Thursday’ release of a raft of economic data, expectations and speeches, as well as announcement of UK interest rates. GBP/EUR around 1.1500 / GBP/USD 1.3870. Importantly, GBP was supported (with reason to be optimistic) as economic forecasts improved:
2021 GDP growth revised from 5% to 7.5%
BoE sees UK unemployment 5.1% in Q4 2021 (February forecast: 6.4%)
BoE sees UK unemployment to peak just under 5.5% in Q3 2021 (February forecast: 7.8% in Q3 2021)
Rates were unchanged at 0.1% as expected, and the BoE announced NO change in its Asset Purchase Facility – broadly in line with consensus. This means that June’s announcement is more likely to see a reduction in bond buying and exit measures.
EUR: Today saw EUR/USD extend its bounce towards 1.2050, underpinned by strong German Factory Orders, upbeat comments from the European Commission President Ursula von der Leyen and broad-based US dollar weakness. EU Retail Sales hit 12.6% annualised in March vs a 9.6% print in February, as the Eurozone nations slowly loosened Covid restrictions.
USD: Slightly lower, as data reaffirmed market expectations that the Central bank will keep rates low for a longer period. This, along with a softer tone surrounding the US Treasury bond yields pressured USD. Today’s strong employment data countered yesterday’s ADP Jobs report & PMI readings which had piled on the pressure to a beleaguered USD despite a strong vaccination program and other signs of economic recovery.
Tomorrow’s employment data will be closely watched after recent mixed signals.
CAD: Stronger, after a year-long appreciation for the CAD. Boosted further by 2 factors (1) The Central bank timeline for removing economic stimulus (2) recovering commodity prices. USD/CAD hit its lowest level since February 2018 overnight, hitting the low 1.2200 level – EUR/CAD at 1.4750.
AUD: Weaker, and vulnerable. Overnight the RBA will announce its Interest Rate decision along with a press conference – always important, markets will look for the economic forecasts for future direction in AUD. Rate-wise, markets do not expect changes, due to 2 factors:
The deterioration of relations with China, as Reuters says “relations curdle” between the 2 nations, and China suspends economic dialogue. The impact of this could be enormous on Australis, immediately the currency weakened from 0.7705 vs USD to 0.7750. In context: In the 12 months to March, Australia exported A$149 billion ($115 billion) worth of goods to China, excluding services, of which iron ore was by far the largest product.
The Deputy Governor today said “..there has not been any material upside surprise in inflation..” and any conditions to raise rates are not expected “….to be met until 2024 at the earliest..”
As the global economy begins to emerge from economic support & recession, the relative speeds and success of recovery will create pressures and strains on currencies, some of which are already at critical points.