Sterling Climbs After BoE Dove Moves Towards Hawkishness

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Headlines

  • Less Hawkish Fed Comments Offered Support to ‘Aussie’ – Stronger consumer confidence may boost AUD exchange rates
  • Pound Surged Higher After BoE Dove Sounded Optimistic Tone – Brexit jitters continue to hamper GBP strength
  • ECB President Draghi Maintained Dovish Outlook – Euro demand limited ahead of German inflation data
  • NAFTA Concerns Weighed Down CAD Exchange Rates – Investors remain nervous over future of trade agreement

Australian Dollar

The momentum of the Australian Dollar was rather limited at the start of the week, lacking any boost from domestic data at this juncture. Reaction to the replacement of former Deputy Prime Minister Barnaby Joyce caused little stir for AUD exchange rates, with domestic politics taking something of a backseat once again. Even so, the less hawkish nature of comments from a Federal Reserve policymaker offered some support to the ‘Aussie’, diminishing the odds of a more aggressive US tightening cycle.

An uptick in the ANZ Roy Morgan weekly consumer confidence index could offer AUD exchange rates a greater level of support this morning.

Sterling

Demand for the Pound strengthened sharply as Bank of England (BoE) Governor David Ramsden proved unexpectedly hawkish in comments made over the weekend. Investors were encouraged by Ramsden’s statement that he sees the case for interest rates to rise ‘somewhat sooner rather than somewhat later’. As the deputy governor had voted against November’s interest rate hike this shift in tone was seen to boost the odds of the BoE raising interest rates again in May.

Speculation over Brexit is likely to keep GBP exchange rates under some degree of pressure this week, with markets bracing for Prime Minister Theresa May’s latest speech on the subject.

Euro

Unsurprisingly, European Central Bank (ECB) President Mario Draghi adopted a rather cautious tone on the subject of monetary policy in an appearance before the European Parliament. While Draghi acknowledged the strong momentum of the Eurozone economy this did not translate into any particular willingness to wind down the central bank’s stimulus program. As a result the Euro came under some renewed pressure, even though a weaker US Dollar helped to limit the downside potential of EUR exchange rates.

Another dip in the German consumer price index could weigh heavily on the Euro, giving the ECB further cause for caution.

US Dollar

St Louis Fed President James Bullard eroded the appeal of the US Dollar overnight with unexpectedly cautious words on the subject of interest rates. As Bullard noted some concern that the Fed is moving too far and too fast on interest rates this prompted USD exchange rates to trend lower once again. Even though the odds of an imminent rate hike remain high this was not enough to prevent the US Dollar returning to a generally weaker footing.

However, if new Fed Chair Jerome Powell adopts a more positive outlook in his first appearance before Congress the mood towards the US Dollar could improve.

Canadian Dollar

Worries over the future of NAFTA weighed on CAD exchange rates on Monday, with the latest round of renegotiation talks underway. Markets remain concerned by the prospect of the trade agreement collapsing, which could have a significant negative impact on the Canadian economy. Continued weakness in oil prices also put pressure on the Canadian Dollar, with investors seeing little reason to favour the rather fragile-looking currency at this moment.

With domestic data thin on the ground this week CAD exchange rates may struggle to find any rallying point, especially ahead of the latest Budget announcement.

New Zealand Dollar

Confidence in the New Zealand Dollar benefitted from the less hawkish nature of the latest Fed comments. Even though further policy divergence between the Fed and the Reserve Bank of New Zealand (RBNZ) still looks inevitable this was not enough to keep NZD exchange rates on a weaker footing. With markets returning to a more risk-hungry state the ‘Kiwi’ was able to push higher across the board yesterday.

Another widening of the New Zealand trade balance would encourage NZD exchange rates to return to a general downtrend this morning.

Data Released

February 27th 07:45 NZD Trade Balance (JAN) -2711 million
February 27th 23:00 EUR German Consumer Price Index (YoY) (FEB P) 1.5%
February 27th 23:30 USD Fed Chair Powell’s Congressional Testimony Released
February 27th 23:30 USD Durable Goods Orders (JAN P) -2.5%

Post by TorFX

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