Pound once again in bed with Brexit and interest rate flu
The Federal Open Market Committee (FOMC) will speak this evening regarding America’s monetary policy, outlining economic and financial conditions. Hopefully, this will give us a clear indication of what to expect in terms of their future interest rate policies. The FOMC meeting will no doubt have a direct effect on the strength of the Dollar. An assured tone will strengthen the gains made by the Dollar against the Euro at the beginning of the week and we may see the Greenback in a bullish trend once again.
The single currency seems to be showing some resilience and despite being on the defensive for the last few days, the Euro has somehow mustered up some support. Despite the Eurozone ZEW survey printing on the bearish side yesterday, suggesting that the volatility in the financial markets and the drop in oil prices have taken a toll on the business sector’s confidence, the Euro starts the day back in the 1.27 range against the Pound. It also remains buoyant against the Dollar – the pair is above 1.1100 . If the Fed highlight any concerns about the US economy in their meeting this evening, we could see the Euro push back to 1.13 territory.
In opposite fashion to the Euro, the Pound had a less than positive day yesterday following the inflation data. The consumer price index fell to -0.8% on the month, slightly below the expectation of -0.7%. This bearish figure dragged the Pound to fresh lows as investors realised that any chance for a higher rate policy within 2016 is disappearing. The Pound was testing the 1.45 level against the Dollar leading up to the data releases, but soon gave up those gains and opened up this morning at 1.4304 as Brexit fears and low inflation continue to scare investors out of Sterling positions.
UK monthly labour data and wage growth figures are due out today – Cable could stage a recovery if the wage growth rises faster than the 2% we saw last month. However expectations are for a 1.9% reading. A soft reading here is likely to push rate hike predictions even further into the future, and continue the downward pressure on the Pound.
Data to watch: 9.30am UK Claimant Count Rate & Change (Jan). UK Average Earnings. UK ILO Unemployment rate (3M) (Dec). 1.30PM US Housing Starts (MoM) Building Permits (MoM). US PPI. 2.15pm US Industrial Production (MoM). 7pm FOMC Minutes.