Today’s rate @ 08:00 1.1463
Morning Report 19.04.2018
Moneycorp Dealer Team
Another miss for sterling
On Tuesday sterling missed the mark when UK earnings were reported to have risen less quickly than forecast. On Wednesday it missed it in far more comprehensive fashion when the headline inflation figure came in at 2.5%, appreciably below the 2.7% that investors had been teed up for. Sterling fell.
Every one of the UK consumer price measures came in lower than expected. The CPI itself was up by an annual 2.5% and the old retail price index rose 3.3% instead of the forecast 3.6%. “Core” prices, which exclude food and fuel, were 2.3% higher on the year. The inference was that, with inflation slowing from 3% to 2.5% already this year, the Bank of England’s Monetary Policy Committee would have to readdress the idea of a rate increase next month. Investors immediately marked the pound down. After a subsequent bounce here and there it remains an average of 0.7% below Wednesday’s opening levels.
Some say the Old Lady is by now so wedded to its forward guidance towards a May rate hike that it will go ahead regardless. Nevertheless, a move next month is now no longer a foregone conclusion.
Flushed with their success at bashing the pound investors turned their attention to the Canadian dollar when the Bank of Canada released its monetary policy statement. There was absolutely nothing remarkable in the document and that, from their reaction, seems to have disappointed investors. The Loonie fell.
Against sterling, the loss was equal to the gain it had made as a result of the UK inflation figures. Investors had apparently been expecting a more hawkish tone from the BoC, which is still thought likely to take interest rates higher in the next few months. A slow recovery later in the evening mended some of the damage, such that the Canadian dollar lost just a net half cent, but it was still the day’s second weakest performer.
Another loser, in a frog-boiling sort of way, has been the Swiss franc. For 12 months it has been giving up ground to the euro as the appetite has faded for safe havens. This morning it is knocking on the door of €1=Sfr1.20, a level it last saw in January 2015 and it is close to a two-year low against sterling.
Today’s rate @ 08:00 1.1463
Third time lucky?
The third of the week’s major challenges to sterling comes this morning with the UK retail sales data. They are unlikely to be impressive, thanks to eastern beasts frightening shoppers away from the high street. What matters is just how bad they are.
Sales are expected to have fallen by a monthly 0.5%, putting them 2.0% higher than the same month last year. It is anyone’s guess what investors might see as a “good” number.
In view of yesterday’s overreaction to the BoC statement, tomorrow’s Canadian retail sales and inflation figures will have more than the usual significance. Disappointing ones could do more damage to the Canadian dollar.
Weekly Market Updates: Week-ending 13-04-2018
The euro put in an above-average performance, strengthening by the best part of one US cent. It came nowhere near to matching what was a very good week for sterling, losing one cent to the pound. Sterling’s success was mainly a function of improved sentiment; the euro’s underperformance arose from a combination of rate expectations and economic data.
Whilst investors decided they could live with disappointing UK data for manufacturing and industrial production, growth (NIESR) and house prices (RICS) they were less tolerant of an unexpected fall in Euroland industrial output. The angle seems to be that softening €Z ecostats are likely to make the European Central Bank even more reluctant than it already is to tighten monetary policy. On the other hand, they are quite taken by the idea that in every April for the last 14 years sterling has strengthened against the US dollar.