Sterling On Track For Further Upside
Andrew Bailey, Bank of England Governor, stated that negative interest rate contingency plans did not mean the bank intended to move in that direction. He added that there were “two-sided risks to the recovery” and although current risks were tilted towards the downside there are gradually diminishing. Mr Bailey noted that the inflation rate would increase in the short term and it will be difficult to predict whether price increases are likely to be persistent. The markets assumed that negative rates were off the table and there was little reaction in the Pound.
Schools reopening reinforced expectations that the UK economic recovery will arrive before the Eurozone recovery and continuing vaccine programme success continued to provide net support for the Pound.
Sterling dipped to retest the 1.3800 level against the US Dollar while the Euro retreated to lows around 1.1670. The latest data from Barclaycard recorded a 13.8% decline in annual consumer spending for February, while consumer confidence posted a 12-month high amid re-opening hopes. Sterling traded above 1.3800 against the Dollar on Tuesday with the Euro around 1.1670.
The US employment trends index strengthened to 101.0 for February from a revised 99.7 the previous month. There were reports that the Federal Reserve (Fed) was now looking at a new set of labour market indicators including wages growth for low-wage workers and the rate of labour force participation for those without college degrees.
Overall confidence in the US growth outlook remained strong following Friday’s stronger than expected employment report. This optimism over the economy continued to provide support for the US dollar.
The Eurozone Sentix investor confidence index strengthened to 5.0 for March from -0.2 previously and above consensus forecasts of 1.9. The Euro pushed higher following the data but quickly lost ground as overall sentiment remained on the weaker side.
Euro confidence was also undermined by news that curfew restriction in the Netherlands would be extended until the end of March. The Euro currently trades just above 1.1875 as underlying Dollar confidence remains strong with commodity currencies continuing to lose ground.