Better times for UK Exporters
Sterling suffered yesterday with GBP/USD hitting a seven-year low of 1.4057. This was linked with current Pound weakness following from US CPI figures unexpectedly surpassing the Fed’s 2% inflation target last Friday. Cable did manage to claw back some of those losses and opened today at 1.4150.
Confirmation of the EU Referendum date has deterred some investors from a currency that has already been suffering greatly since the end of last year, and this might lead to further losses for the Pound over the next four months as uncertainty continues to filter through. Credit Rating agency Moody’s have also stated that, in the event of an “exit” vote, they would consider reducing the outlook for the UK’s current Aa1 rating from “Stable” to “Negative”.
Today, the focus switches from the Brexit to the UK’s Inflation Report temporarily. Mr Carney and company are likely to avoid a direct discussion of Brexit, rather than explicitly weighing in on a politically charged topic. The weakening of the Pound against all major currencies yesterday may create inflationary pressure if no recovery is seen, meaning the Bank of England’s (BoE) target of 2.0% CPI could be met sooner than expected.
The Dollar showed signs of strength yesterday against the Euro, helped by a rally in global stocks due to a rise in oil and commodity prices. EURUSD opened the day at 1.1122 before a 1.05% drop to find support at 1.10058. The pair did manage a small comeback and opened today at 1.1026. CB consumer confidence and existing home sales are due out today, which are important measures of the overall strength of the US economy.
Eyes will be on Germany today as we prepare to see if the early pace gathered by the European open continues as we wait for data to come out. It will be a data heavy day as there will be six announcements, including German gross domestic product and German IFO which will determine which way the Euro will go. However, the rise we saw yesterday in oil and commodities may halt any rally in EUR/USD that we might see if the data is positive.
Data to watch: 7am German GDP. 9am German IFO Current Assessment, Business Climate & Expectations. 10am UK Inflation Report Hearing. 3pm US Consumer Confidence (Feb).