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Crass Carney Crushes Conjecture

Crass Carney Crushes Conjecture

GBP
Bank of England Governor Mark Carney stated last night that he envisaged a few interest rate increases over the next few years but after mixed economic data he did not want to get too focused on the precise timing of a rate hike. Higher interest rates tend to attract foreign investment, increasing the demand and value of a currency. Markets doubted the highly-anticipated May rate hike would happen, which had been “priced in”, and so the Pound suffered a sharp sell-off with a dip below 1.4100 against the Dollar and 1.1402 against the Euro.

Reports that EU officials disagreed with proposed Irish border arrangements and had rejected other UK proposals also compounded negative Sterling sentiment. Earlier on Thursday, UK retail sales data shrank 1.2% in March, far more than the expected decline of 0.5%. Although February’s figures were revised upward, the annual increase limped in at 1.1% and Q1 sales printed the weakest figure since the start of 2017; this will negatively impact GDP growth.

Sterling remained under pressure on market open, dropping to near 1.4050 against the Dollar as oil prices also declined.

USD

The US Dollar is marginally higher today, supported by higher US bond yields and expectations of more interest rate increases from the Federal Reserve (Fed). The Fed’s Beige Book reported activity remained at ‘a modest to moderate pace’ in March and early April, and there were widespread concerns about trade policy.

Narrow ranges prevailed ahead of the New York open with the Euro again hitting resistance on approach to the 1.2400 area against the Dollar. US jobless claims were little-changed in the latest week at 232,000 from 233,000 previously, maintaining the solid run of employment data.

We also saw the US 10-year treasury yield climb from 2.86% to 2.93%, moving in on the multi-year high of 2.95%. Fed fund futures yields continued to price the next rate hike in June around 90%. Fed governor Brainard warned about rising asset prices and leverage. The DXY ranged between 89.504 – 89.952 and ended the NY session towards the higher end of the range and approaching the 90 handle once again.

EUR

It has been a strong week for the Euro in terms of recovering the losses from last week. Recent news of a dovish stance from Carney has further strengthened the Euro against the Pound and news on the Brexit front will likely give Euro further support going forwards. Fresh reports state the UK’s Irish border proposals will not satisfy EU negotiators while both sides retain the mindset that nothing is agreed until everything is agreed.

There was a minimal economic calendar for the Euro yesterday. A sharp rise in German bund yields provided the single currency protection whilst the Eurozone current account showed a drop in surplus from €37.6 billion in January to €35.1 billion in February.

The Euro gradually weakened against the Dollar as US yields pushed higher, moving the pair down to 1.2350.

Data to Watch:

24h USD OPEC meeting
24h EUR IMF Meeting
10:30 GBP MPC Member Saunders Speech
12:30 EUR German Buba President Weidmann speech
16:15 USD FOMC Member Williams speech
18:00 USD Baker Hughes US Oil Rig Count

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