Confidence in the Pound strengthened sharply in the wake of the Bank of England (BoE) policy meeting as three policymakers voted in favour of an immediate interest rate hike. A greater split than anticipated, this encouraged investors to pile back into Sterling as a return to tighter monetary policy appeared nearer. However, with one of the hawks set to leave the Monetary Policy Committee (MPC) at the end of the month interest rates are unlikely to rise any time soon. With Brexit negotiations due to begin next week the mood towards the Pound has soured once again.
There was relief across the markets as the Eurogroup meeting yielded an agreement to disburse the next tranche of Greek bailout funds. However, the Euro struggled to particularly capitalise on this positive development thanks to the fact that the question of debt relief remains stubbornly unsolved. With inflation in the Eurozone confirmed to have slowed to 1.4% on the year the outlook of the currency union remains somewhat discouraging. Even so, if President Emmanuel Macron’s En March movement sweeps the French parliamentary elections on Sunday the single currency could find a fresh rallying point.
Disappointing production and housing figures weighed heavily on the ‘Greenback’, adding to concerns that the world’s largest economy is not in the most robust health at present. This undermined the optimism provoked by Wednesday’s hawkish Federal Reserve meeting. While policymakers have adopted a more optimistic view on the economy the odds of further monetary tightening are limited by these latest signs of weaker growth. However, a strong showing from the latest University of Michigan confidence index could shore up the US Dollar this afternoon.
In spite of a lack of fresh domestic data the Australian Dollar continued to trend higher today, benefitting from a wider sense of risk appetite. Investors are still taking encouragement from the better-than-expected labour market data, with confidence in the strength of the Australian economy generally improved. Even so, ahead of the release of the Reserve Bank of Australia’s (RBA) meeting minutes next week the ‘Aussie’ may struggle to hold onto its recent gains.
New Zealand Dollar
A solid uptick in the New Zealand manufacturing PMI boosted demand for the ‘Kiwi’ on Friday morning. Rising from 56.9 to 58.5 the index pointed towards a strong level of growth within the manufacturing sector, boding well for the health of the wider economy. Providing general market risk appetite remains robust the New Zealand Dollar could extend its bullish run further during the course of the day.
Existing home sales were found to have contracted -6.2% on the month in May, indicating that the Canadian housing market is continuing to slow. This gave investors fresh reason to sell out of the Canadian Dollar, particularly as oil prices were still languishing under worries over the persistent global oversupply glut. Confidence in the commodity-correlated ‘Loonie’ is unlikely to pick up ahead of the weekend, especially if the latest US rig count points towards a further increase in oil output.
This week the US Dollar was touching three-year highs when valued against a basket of major currencies. The greenback’s traditional role as one of the safe-haven currencies is helped by a domestic economy that is largely immune to the threats of the coronavirus.
Last update: 22 Feb, 2020
The strong start to the year for “risk-on” currencies is already a distant memory.
Posted: 3 Feb, 2020
The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
Last update: 8 Jan, 2020