The EU Summit and the BoE Put the Pound Back in the Spotlight

The Kiwi and Aussie Dollar find strong support in the wake of a more dovish than expected FED. Will be the BoE sink the Pound later today?
Bob Mason
BoE

Earlier in the Day:

Economic data released through the Asian session this morning was on the lighter side. 4th quarter GDP numbers out of New Zealand and employment figures out of Australia provided direction early on.

In the wake of a particularly dovish FED, the markets also responded further to the forward guidance on policy and economic outlook for the U.S.

For the Kiwi Dollar,

The economy grew by 0.6%, quarter-on-quarter, in the 4th quarter. In line with forecasts, growth picked up from the 3rd quarter’s 0.3%. According to figures released by NZStats:

  • Growth was attributed to a 0.9% rise in service industries, which was partially offset by 0.2% growth in goods-producing industries.
  • Retail and accommodation led the services industry, with growth of 2.5%, which came primarily from food and beverage services.
  • Transport, postal and warehousing also saw strong growth, up by 3.2%.
  • From goods-producing industries, construction (+1.8%) was the only industry to see an increase in growth.
  • The economy grew by 2.8% in 2018, which was in line with forecasts, whilst softer than 3.1% growth in 2017.
  • Year-on-year, the economy grew by 2.3% in the 4th quarter, which was softer than a forecasted 2.5% and 3rd quarter 2.6%.

The Kiwi Dollar moved from $0.68718 to $0.69719 upon release of the figures. At the time of writing, the Kiwi Dollar stood at $0.6920, up by 0.54% for the session.

For the Aussie Dollar,

According to the figures released by the ABS,

  • The number of employed rose by 14.8k in February, coming up short of a forecasted 15k increase, following January’s 39.1k rise.
  • Full employment slipped by 7.3k in February, following a 65.4k increase in January.
  • The unemployment rate fell from 5.0% to 4.9% in February, with the participation rate falling from 65.7% to 65.6%.
  • Part-time employment increased by 11.9k, partially reversing a 26.3k decrease in January.
  • Since February 2018, full-time employment increased by 210k, while part-time employment has risen by 74k.

The Aussie Dollar moved from $0.71358 to $0.71564 upon release of the figures. At the time of writing, the Aussie Dollar stood at $0.7147, up by 0.44% for the session

Elsewhere,

At the time of writing, the Japanese Yen was up 0.15% to ¥110.53 against the Dollar. In spite of the BoJ going nowhere on a shift in policy, support for the Yen continued early in the day. Whether a return to ¥109 levels is feasible remains to be seen, however, with economic data out of Japan suggesting more easing may be required.

The Day Ahead:

For the EUR

There are no material stats scheduled for release out of the Eurozone today to provide direction to the EUR. While there are no stats, the ECB Economic Bulletin will garner some attention. Following a more dovish than anticipated FED, the upside for the EUR could be limited should there be any more downward revisions.

Convergence in the ECB and FED’s outlook towards monetary policy will provide support for the EUR. Any risk aversion would likely limit any upside later in the day, however.

At the time of writing, the EUR was up 0.08% at $1.1422.

For the Pound

It’s a big day for the Pound. On the data front, February retail sales figures are due out. While forecasts are for a moderate increase in sales, the Pound would likely find some support early on in the day.

Outside of the numbers, the BoE will deliver its March monetary policy decision later in the day. With uncertainty over Brexit continuing to linger, there’s unlikely to be any surprise guidance from Carney and the team.

On the Brexit front, the EU Summit kicks off today and British Prime Minister Theresa May will be looking for approval of the Brexit extension. According to reports, the extension request was for just 3-months. With Parliament having failed to agree on a deal, how member states view the timeline will be of interest. The EU may force Britain into a lengthier extension, which should be Pound negative.

At the time of writing, the Pound was up by 0.13% to $1.3215, early gains coming off the back of Dollar weakness.

Across the Pond

It’s a busier day on the economic calendar. The weekly jobless claims and March Philly FED Manufacturing PMI numbers are due out. Both data sets are likely to influence, whilst 4th quarter current account figures will likely be brushed aside.

Outside of the numbers, more U.S-China trade war chatter may also be on the cards. Comments on Wednesday raised some concerns over whether an agreement can be reached ahead of an anticipated Trump – Xi meeting next month.

At the time of writing, the Dollar Spot Index was up by 0.18% to 95.935.

For the Loonie

Following a quiet first half of the week, January wholesale sales figures are due out later today. While forecasts are skewed against the Loonie, a jump in crude oil prices and a dovish FED should limit any downside.

The Bank of Canada may have been dovish but, with the FED joining the likes of the BoC and ECB, a degree of monetary policy convergence took place late on Wednesday.

The Loonie was up 0.16% at C$1.3284, against the U.S Dollar, at the time of writing.

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