Can Sterling make the most of Dollar weakness?
The Bank of England’s (BoE) Ian McCafferty stated that the UK labour market had no slack and that 2018 wage growth stood a modest chance of beating forecasts. McCafferty stated that the BoE shouldn’t drag its feet and raise interest rates modestly. Despite the hawkish tone, McCafferty had already voted for a hike in March so Sterling impact was limited. Chief Economist Andy Haldane made no comment on monetary policy.
The lack of selling pressure on the Pound and a weaker Dollar tone meant highs around 1.4190 while the Euro was unable to sustain gains and settled near 1.1480. An improvement in global risk appetite and notable strength in oil prices fed into a strong opening position this morning, with the Pound at 1.4204 against the Dollar and 1.1478 against the Euro. We await manufacturing data where only a modest improvement is pencilled in.
The US NFIB small-business confidence index dropped to 104.7 for March from its all-time peak of 107.6 previously, meaning there is a dwindling number of businesses expecting economic conditions to improve. In historical terms, however, this level sits far and above previous years. The survey further reported labour shortages with upward pressure on both wages and prices rising.
On the positive side, US producer prices rose 0.3% for March which beat consensus forecasts of a 0.1% rise. The annual figure strengthened to 3.0% from 2.8% previously while core prices increased 2.9% which provided only limited Dollar support.
Today, US CPI excluding food and energy is expected to rise 0.2% in March while accelerating to 2.1% y/y from 1.8% y/y in February. The following FOMC minutes will then likely reveal details of the policymakers’ discussion regarding future of interest rates.
EURUSD is trading at its highest point in nearly two weeks on the back of hawkish comments from Nowotny. The European Central Bank (ECB) member raised speculation that the Central Bank will start raising borrowing costs. He, however, stopped short on the timing of when this is going to happen. The Euro is currently up 0.25%, close to the 1.2300 level.
The European session ahead will be thin but potentially important for the Euro. On the economic calendar; the ECB will be posting the minutes of their Non-Monetary Policy Meeting followed by low-tier Retail Sales figures for Italy. The ECB is unlikely to see much volatility as the central bank will not be discussing monetary policy specifically, though the ECB’s President, Mario Draghi, will be giving a speech at 12:00 BST, where he will be speaking at the Generation Euro Students’ Award Ceremony in Frankfurt.
Data to Watch:
06:00 AUD RBA’s Governor Philip Lowe Speech
09:30 GBP Industrial Production (MoM) (Feb)
09:30 GBP Manufacturing Production (MoM) (Feb)
09:30 GBP Manufacturing Production (YoY) (Feb)
12:00 EUR ECB President Draghi’s Speech
13:30 USD Consumer Price Index (MoM) (Mar)
13:30 USD Consumer Price Index Core s.a (Mar)
13:30 USD Consumer Price Index Ex Food & Energy (MoM) (Mar)
13:30 USD Consumer Price Index (YoY) (Mar)
13:30 USD Consumer Price Index Ex Food & Energy (YoY) (Mar)
19:00 USD Monthly Budget Statement (Mar)
19:00 USD FOMC Minutes