Pound Exchange Rates Slide After UK Inflation Miss

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Headlines

  • Australian Unemployment Rate Forecast to Fall – AUD exchange rates could benefit from tightening labour market
  • GBP Exchange Rates Faltered on Underwhelming UK Inflation Data – Doubts emerge over possibility of May BoE interest rate hike
  • Markets Unsurprised After Bank of Canada Left Rates on Hold – Uncertainty over NAFTA limits odds of further policy tightening
  • Weaker New Zealand Inflation to Extend NZD Losses – Signs point towards easing price pressures

Australian Dollar

A contraction in the Westpac leading index did little to improve the appeal of the Australian Dollar yesterday. As the index dipped from 0.43% to -0.22% this suggests that activity within the Australian economy slowed at the end of the first quarter. As a result, AUD exchange rates saw only limited support on Wednesday as confidence in the domestic outlook remains rather muted.

This morning’s Australian labour market data could offer the Australian Dollar a solid rallying point, however, as forecasts point towards the unemployment rate easing to 5.5%.

Sterling

GBP exchange rates slumped sharply during Wednesday’s European session in the wake of March’s UK consumer price index data. Investors were disappointed to find that inflation had dipped to 2.5%, falling short of forecast and hitting a one-year low. As inflation is falling back towards the Bank of England’s (BoE) 2% target this undermined bets on the prospect of a May interest rate hike to the detriment of the Pound.

If UK retail sales show signs of strengthening, though, Sterling could find some degree of support this evening.

Euro

Although the finalised Eurozone consumer price index for March was unexpectedly revised down from 1.4% to 1.3% this failed to particularly weigh on the Euro. The change was largely dismissed by investors, with inflation already lagging markedly behind the European Central Bank’s (ECB) target. As a result the odds of the ECB altering its policy outlook remain as limited as before, giving EUR exchange rates no additional cause for softness.

With no major Eurozone data due for release today the Euro may struggle to hold onto a stronger footing.

US Dollar

While the International Monetary Fund (IMF) levelled some criticism at the Trump administration’s fiscal stimulus, which is driving up the US budget deficit, this had little impact on USD exchange rates. A solid rebound in the latest MBA mortgage applications figure offered some encouragement to the US Dollar, pointing towards a healthier domestic housing market. Even so, a lingering sense of political uncertainty and trade jitters limited the upside potential of USD exchange rates.

Market focus will increasingly turn towards commentary from Federal Reserve policymakers, with investors still weighing up the odds of the central bank adopting a more aggressive policy approach.

Canadian Dollar

It came as little surprise that the Bank of Canada (BOC) opted to leave interest rates on hold at its April policy meeting, in spite of recent positive data. While policymakers took a somewhat hawkish tone on the subject of further monetary tightening this was largely overshadowed by lingering NAFTA uncertainties. Until the future of the trade agreement becomes clear the chances of any BOC action are likely to remain slim, regardless of any stronger domestic data.

As long as the oil market stays in a more bullish mood the downside potential of CAD exchange rates looks a little muted, however.

New Zealand Dollar

Rising prices at the Global Dairy Trade auction were not enough to boost NZD exchange rates, in spite of the positive implications for the domestic dairy sector. A general lack of market risk appetite left the New Zealand Dollar with little in the way of support yesterday, with investors seeing no particular reason to favour the ‘Kiwi’ over its rivals.

Further weakness could be in store for the New Zealand Dollar today if the first quarter consumer price index eases from 1.6% to 1.1% on the year as forecast.

 Data Released

April 19th 08:45 NZD Consumer Price Index (YoY) (1Q) 1.1%
April 19th 11:30 AUD Unemployment Rate (MAR) 5.5%
April 19th 18:30 GBP Retail Sales Ex Auto Fuel (YoY) (MAR) 1.4%
April 20th 00:00 USD Leading Index (MAR) 0.3%

Post by TorFX

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