Pound continues to gain, buoyed by General Election result
12/May/2015 • Currency Updates•
The Pound continued to rally against the US Dollar on Monday, still buoyed by last week’s election result that led to a majority Conservative government. Sterling soared by 1% against Greenback, to its strongest position so far in 2015, and by 1.3% versus the Euro.
Yesterday the Bank of England announced it would be keeping its interest rate on hold at its record low 0.5% for yet another month. The decision, which usually takes place on a Thursday, was delayed due to the election but came as no surprise, with the benchmark rate remaining unchanged for the past six years. Markets are instead focusing on Wednesday’s quarterly inflation report, with Mark Carney expected to warn markets that they are too relaxed about the timing of the next rate hike. Perceived hawkishness, in the form of upward revisions in the inflation forecasts, could provide a short term boost for Sterling. With the election now out of the way, attention in the UK will return to interest rates and the next hike, forecast to occur early in 2016.
Today will see industrial and manufacturing production figures for March from the Office for National Statistics at 9.30am, with growth in the two industries expected to have remained mostly flat.
The Euro fell against GBP, although a relatively subdued day for economic releases in Europe meant the single currency traded within a narrow band with the Dollar, ending trading 0.2% lower.
A lack of any data whatsoever in the Eurozone yesterday meant that all attention turned to Greece as negotiations surrounding the country’s debt continued in Brussels. Most investors took a pessimistic view of the latest talks between Eurozone Finance Ministers and the Greek Government, with the single currency declining against most of its major peers as markets opened for the week. Negotiations remain slow, with lenders ruling out a decisive agreement yesterday before talks even began. However, on the positive side, Greece confirmed it had repaid a sum of €750 million to the International Monetary Fund that was due for Tuesday, a payment that had been in doubt for a number of weeks.
Greece will remain in focus this week, as will the release of growth figures and the ECB’s MPC accounts on Thursday.
The Dollar ended Monday mostly unchanged against its trade weighted basket of peers, with the US Dollar index 0.1% higher for the day.
Monday was a muted day in the US as far as economic indicator data was concerned. San Francisco Federal Reserve President John Williams did, however, strike a hawkish tone in New York yesterday afternoon. Williams echoed our opinion that the slump in Q1 growth in the US was an anomaly, stressing an interest rate hike was now a possibility at any Federal Reserve meeting. He also claimed unemployment would fall to just 5% by year end, although warned inflation continued to be held back in the US, having back into negative at -0.1% in March.
There will be a string of economic releases in the US today, although the lack of any significant announcements means most Dollar volatility is likely to be down to external factors. A quiet start to the week in the US should pick up on Wednesday with the release of retail sales for April.
Rest of the world
A host of emerging Asian economies dipped on Monday after China cut its benchmark interest rate by 25 basis points to 5.1%, amid lagging growth which has recently fallen to its lowest in 24 years. The New Zealand Dollar also fell to multi-week lows, making it one of the day’s worst performing currencies amid increasing speculation of an interest rate cut in the coming months.