Sterling inches up, date for EU referendum may be announced today
19/Feb/2016 • Currency Updates•
On Thursday Sterling recovered from its two-week low against the US Dollar, boosted by optimism surrounding David Cameron’s renegotiated deal on Britain’s EU membership.
However, this proved short-lived as talks between the Prime Minister and EU leaders stalled. Discussions ended at 4:30 this morning and recommenced at 9:00 UK time.
Should we get an agreement this morning, David Cameron will hold an emergency cabinet meeting later today, which could result in the announcement of a firm date for the referendum, expected to take place at the end of June.
During the London trading session yesterday, commentary from the European Central Bank continued to all but confirm the central bank would be ramping up its monetary easing at its next meeting in March.
Meanwhile, the Brazilian Real tanked after Standard & Poor’s downgraded the country’s debt rating deeper into junk territory.
A further rebound in stock markets and oil prices also increased risk appetite and sent the US Dollar higher against its major peers. The US Dollar index has now risen in two of the last three sessions, more or less in line with the rebound in oil.
The US Dollar could receive a boost today following the release of the latest inflation figures for January at 13:30pm UK time, which is expected to show consumer prices grew by 1.3% on an annualised basis. This would prove a significant improvement on a month previous and could bring forward expectations for the next interest rate hike across the Pond.
Major currencies in detail:
Earlier gains for the Pound were erased somewhat as negotiations in Brussels dragged on without an agreement. Sterling still ended 0.2% higher against the US Dollar.
With no economic data released in the UK on Thursday, all attention among Sterling traders was on developments in Brussels.
A failure to get an agreement on key issues of Britain’s membership this morning could cast further doubt over the future of Britain as a member of the EU, which would likely weigh further on Sterling. Increased chances of a Brexit and delayed expectations for a Bank of England rate hike have already sent the Pound 3% lower this year.
Elsewhere, retail sales figures this morning are expected to show consumer spending ticked upwards in the first month of the year, although this could be largely overlooked by EU referendum news.
The Euro fell throughout the day on Thursday, depreciating by 0.4% amid increased risk appetite.
Yesterday we saw the release of the ECB’s meeting accounts from its latest monetary policy meeting in January. The accounts were in line with President Mario Draghi’s statement and press conference last month, keeping the door firmly open to additional monetary stimulus at the next meeting in March.
Similarly to the FOMC minutes, the ECB remains concerned about recent global turmoil, claiming ‘the environment had deteriorated in emerging market economies in particular’ since the December meeting. Weak wage growth is also expected to pose an increased risk to low inflation.
Consumer confidence data at 15:00 UK time will be the only data point of note in an otherwise quiet end to the week for the Euro-area economy.
The US Dollar index climbed by 0.3% yesterday, with a rebound in stock markets and oil prices leading to a renewed appetite for riskier assets.
The Greenback also received a boost from some positive economic data released in the US.
Initial jobless claims crushed expectations. The weekly measures fell more than expected to just 262,000, its lowest level since November. The four-week moving average fell to around 273,000 in another clear sign of an improvement in labour market conditions in the US.
Equally encouraging is that the Philly Fed manufacturing survey ticked upwards slightly to -2.8 from -3.5. However, a strong Dollar and weak external demand continue to weigh heavily on the country’s manufacturing sector.
Inflation figures this afternoon will be today’s focal point. A speech from Federal Reserve member Loretta Mester at 13:00 UK time could also prove a market mover.
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