Pound Falls Back Despite Hawkish Signals from BoE

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Headlines

  • Surprise Unemployment Rate Uptick Limited Australian Dollar Demand – Prospect of additional US tariffs dented risk appetite
  • GBP Exchange Rates Retreated Despite Mounting Expectations for May BoE Rate Hike – Sterling unable to sustain bullish run ahead of weekend
  • Underwhelming Eurozone PMIs Left Euro on Softer Footing – Economic growth slowed to fourteen-month low
  • Lack of Change From RBNZ Failed to Hold Down NZD – New Zealand Dollar still looks vulnerable to global trade worries

Australian Dollar

February’s Australian labour market data proved rather mixed in nature, with the unemployment rate rising back to 5.6% in spite of a sharp increase in full-time employment. This was largely due to a corresponding uptick in the participation rate, which indicates that there is now a larger number of economically active individuals within the economy. However while this initially offered some support to the Australian Dollar this was soon eroded by mounting worries over the prospect of the US imminently imposing fresh tariffs on China.

Fears over the prospect of a global trade war are likely to keep the Australian Dollar on a weaker footing heading into the weekend.

Sterling

Although the Bank of England (BoE) proved a little more hawkish than anticipated at its March policy meeting, with two policymakers voting for an immediate interest rate hike, this failed to keep the Pound on a bullish run. After a fresh uptick in the wake of the announcement GBP exchange rates began to soften, with investors appearing to consider a May interest rate hike already priced into Sterling. As any snag in Brexit negotiations could discourage policymakers this helped to limit appeal of the Pound.

After seeing such strong gains over the course of the week GBP exchange rates are expected to trend generally lower today.

Euro

While the latest European Central Bank (ECB) Economic Bulletin proved rather upbeat in nature investors maintained a rather bearish view of the Euro on Thursday. Even though the central bank sounded a positive note on the subject of domestic wage growth this was still overshadowed by the disappointing nature of March’s raft of Eurozone manufacturing and services PMIs. As growth across the Eurozone economy eased to its slowest level since January 2017 this gave investors incentive to sell out of the single currency, even though the underlying picture remains positive.

As a result, the Euro looks unlikely to find any particular support in the near term, unless concerns over a potential trade war with the US ease.

US Dollar

In the wake of the Federal Reserve’s interest rate hike the US Dollar struggled to find particular support, with markets somewhat disappointed by the nature of the updated dot plot. As Fed policymakers only anticipate a total of three interest rate increases over the course of 2018 there was little scope for USD exchange rate gains. Even so, better-than-expected leading index and jobless claims data offered investors some cause for confidence in the US Dollar overnight, particularly as market risk appetite diminished.

The US Dollar could recover further if the forecast rebound in the latest US durable goods orders data materialises.

Canadian Dollar

Reports of positive progress within NAFTA renegotiation discussions helped to boost the Canadian Dollar, with markets encouraged by signs that the US position is becoming less rigid. Even though the threat of further US tariffs remains CAD exchange rates still pushed higher during Thursday’s European session. While the oil market returned to a less optimistic mood this failed to particularly weigh down the Canadian Dollar at this stage.

If the Canadian consumer price index data shows a solid uptick in inflation on the year this could see CAD exchange rates extending their recent gains.

New Zealand Dollar

In spite of the Reserve Bank of New Zealand (RBNZ) leaving interest rates on hold and maintaining its earlier cautious guidance NZD exchange rates trended higher yesterday. This was largely thanks to the less hawkish nature of the Fed policy announcement, creating the room for some ‘Kiwi’ upside momentum. There is also an element of uncertainty surrounding the policy outlook of incoming RBNZ Governor Adrian Orr, which could create the potential for further New Zealand Dollar gains in the coming months.

Risk aversion could still weigh on the New Zealand Dollar today, however, as worries over the outlook of the global economy remain.

Data Released

March 23rd 22:30 CAD Consumer Price Index (YoY) (FEB) 2.0%
March 23rd 22:30 CAD Retail Sales (MoM) (JAN) 1.2%
March 23rd 22:30 USD Durable Goods Orders (FEB P) 1.7%

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