Post date: 11/05/2018 16:00

Our Latest Currency Market Update

GBP

Sterling struggled following the Bank of England interest rate decision yesterday but has made a very small recovery since. GBP exchange rates fell against all major currencies yesterday after the slightly more dovish commentary coming from Mark Carney. Although interest rates were held at 0.5% as widely expected, the pound fell on the back of what was cited as an uncertain path with Brexit as well as the reduction in growth forecasts for 2018 which have been revised down from 1.8% to 1.4%. The split on the Monetary Policy Committee was 7-2. The bad weather over February and March is taking most of the brunt for the poor GDP data but there are some concerns that the British economy is facing other issues, namely Brexit.

EUR

Macroeconomic news was fairly light on the ground in the Eurozone. The euro fell off against its peers last week, with the single currency being undermined by a run of high impact data, leaving the euro a little weaker during the first half of the session. Unfortunately, this was unchanged by the release of the Eurozone’s latest GDP figures. A lot of data out in the Eurozone next week so we expect to see a lot more volatility for the euro.

USD

While growth was revised up for the fourth quarter of 2017, this was not enough to counteract the slide in GDP seen in the first quarter of 2018 as it appeared to confirm market suspicions that the Eurozone’s recent sturdy growth may have peaked the USD.

Softer than the consensus, US inflation was enough to prompt some traders to dial back bets of an accelerated pace of Federal Reserve interest rate hikes yesterday. The figure came in, at 2.5%, its fastest pace in over a year, however the core measure fell short of expected. The reading, which cuts out volatile components, was unchanged at 2.1% after investors had eyed an increase to 2.2%. A rise in US 10 year yields back above the psychological 3.0% level helped support the dollar, while offsetting some of the concerns over Donald Trump’s decision to pull out of the Iran nuclear deal on Tuesday evening. This was somewhat blunted by the fact that other members, including Iran, pledged to stay in the deal. On the macroeconomic front, US producer price data was soft, slipping to 2.6% year-on-year versus the 2.8% consensus, but had minimal effect on the market.