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Rate hike expectations support Sterling

Rate hike expectations support Sterling

GBP
The Halifax recorded a surprise house price index increase of 1.5% in March which significantly exceeded expectations of around 0.2% and the annual figure strengthened to 2.7%. Although house price data forms only a small part of the overall economic outlook, the positive data maintained expectations of a rate hike at the May monetary policy meeting and supported the Pound despite bond yield spreads declining.

Improvement in global risk appetite and a recovery in oil prices also contributed to Sterling peaking above 1.4150 against the Dollar, although the Euro successfully defended the 1.1500 support level. Overnight, the BRC reported year-on-year retail sales growth of 1.4% in March from -0.1% previously while Barclaycard reported a 2.0% increase from 3.8% previously. With the timing of Easter and adverse weather taken into account, the data, overall, suggested resilience and Sterling opened at 1.4145 against the Dollar and 1.1485 against the Euro.

USD

It was a relatively quiet day in terms of economic data for the Dollar yesterday as the employment trends index strengthened to 107.7 for March. Further, the latest New York survey showed a slight drop in one-year inflation expectations but an increase in three-year expectations.

With the market continuing to speculate a potential trade fiasco with China, coupled with Trump tweeting about unfair and ‘stupid’ trade, all while China considers weakening their currency, the Dollar is trading weaker. The Dollar lost 0.5% against both the Pound and the Euro as risk appetite returned. Cable closed at 1.4139 with the Euro trading at 1.2313.

Inflation and the FOMC minutes still remain the key releases this week, though trade headlines look set to dominate the focus for now.

EUR

The Eurozone Sentix investor confidence index declined to 19.8 for April from 24.0 previously which maintained current beliefs that economic momentum is dwindling; this reading was the lowest reading for 14 months. Further, there was weak trade data from Germany as exports plunged unexpectedly by 3.2% from January, giving the steepest decline since August 2015. Imports also fell.

In the European Central Bank’s (ECB) annual report, the market appears to have taken comfort from Mario Draghi’s comments that the recent slide in stock markets this year has not materially impacted Eurozone financial conditions. Draghi further stated inflation would move higher, suggesting that ECB board members remain calm about market volatility, but he did reveal his uncertainty over the amount of potential economic slack.

Data to Watch:

9:30 US FOMC Robert Kaplan speech
10:30 UK BoE’s Andy Haldane speech
13:30 US March PPI ex Food & Energy YoY and MoM

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