The market recovery seen in the wake of the G20 meeting fast faded as the arrest of a prominent Chinese businesswoman spooked markets, leaving the Australian and New Zealand dollars under pressure.
The pound is on weak form this morning. The GBP/EUR exchange rate has fallen -0.1% to €1.1265, while the GBP/USD exchange rate is down by a similar amount to US$1.3957. The GBP/AUD exchange rate has dropped to -0.4% to AU$1.7708, GBP/NZD is down -0.1% to NZ$1.9040, and GBP/CAD is also down -0.1% to C$1.8081.
Read on to see what it was about the Spring Statement that caused markets to push the pound higher, and what may yet motivate them to sell Sterling again…
What’s been happening?
Pound Sterling was on strong form yesterday afternoon after Chancellor Philip Hammond delivered his Spring Budget Statement, despite gloomy forecasts from the Office for Budget Responsibility (OBR).
Markets decided to focus on the Chancellor’s hints that a lower deficit may free up money for public spending when the Budget is delivered in autumn, as well as the 0.1% upwards revision to the 2018 GDP forecasts made in November.
Despite the pound’s overall strength, GBP/EUR was left struggling around opening levels yesterday after the latest US consumer price index data gave a strong boost to the euro and allowed the GBP/USD exchange rate to post solid gains.
The figures were actually fairly solid, with core inflation remaining just below the Federal Reserve’s target rate at 1.8%, although wage growth did slow on an annualised basis.
However, markets want to see a change in the status quo from new data, as only a more upbeat outlook for spending is likely to convince the Federal Reserve that it needs to hike interest rates more times than the three rounds of tightening currently pencilled in.
What’s coming up?
With the prospect of an empty data calendar for the UK for the rest of the week, markets are likely to focus on the outlook for Brexit.
This could see the more gloomy aspects of yesterday’s Spring Budget Statement return to haunt the pound; the OBR’s forecasts for productivity growth remain weak and the Treasury’s watchdog even stated that there was a 50-50 chance of recession in the coming years.
The OBR also forecast that Brexit would lead to an increase in public spending and borrowing that would leave the UK worse off overall after taking into account the money saved from not having to pay into the EU budget.
European Central Bank (ECB) President Mario Draghi delivered a speech this morning, but markets might wait until all of today’s scheduled policymaker speeches have been delivered before pushing the euro higher or lower, as they will have a more comprehensive idea about the feelings of the Governing Council.
US advance retail sales figures for February are set for release today, although these may not provide much support for the US dollar as forecasts are only for a recovery from -0.3% to 0.3%.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)