Sterling gains, Yellen sticks to the script
12/Φεβ/2014 • Currency Updates•
The pound had a much better day yesterday, punching aggressively up towards monthly highs. It climbed nearly a cent on the dollar, despite an afternoon rally from the greenback, ending around levels not seen since January. Progress was just as smooth against the euro, gliding upwards to record gains of 0.5%.
2014 has seen the three major most highly traded currencies in a bit of a scrap for supremacy, with volatility between pairs in excess of 2.5%. Markets that were split back in 2013 now seem to be more reactionary than ever, with no discernible trends appearing yet this year.
Today’s quarterly inflation report and Mark Carney’s speech will go a long way to swinging investors one way or the other. Despite last month’s rate being bang on target at 2%, Carney is unlikely to be complacent. Markets will have to focus on the nuances of the prose rather than any major announcement.
The single currency lost ground across the board yesterday. Similarly to the pound on Monday, the euro found itself buffeted by global economic winds rather than having any driving force of its own. Despite today’s drop the euro is still in a stronger position than a week or two ago after last week’s rally, but with economic data from Europe at the moment being so poor it will struggle to bluff its way around these levels for much longer. It is likely to move with more purpose today, on the back of a speech from the ECB president.
Mario Draghi’s speech is probably the least predictable of the three this week. The President of the ECB could quite easily go either way; the question is whether he will hold his bullish stance on inflation unabashed.
Aside from the main event, today also sees industrial production figures from across the EU for December, French current account deficit levels and Portuguese consumer confidence reports.
A day of mixed fortunes for the greenback. It dropped off rapidly against the pound right from the open, getting only brief respite in the moments after the Fed Chair’s statement was released, before carrying on the downward path into the afternoon. Better fortunes were found to the south of the UK as the dollar took points off the euro. It saw gains of half a cent in the morning, before losing momentum in the afternoon. A late rally took it to a positive position by the evening.
Positive market reaction to Janet Yellen’s speech was stymied by reports that retail sales released on Thursday would, come in under par, offering more weight to the evidence of stagnation in the US in December.
The newly crowned Chair of the Fed deliberately chose not to rock the boat during her first official speech, adopting a dovish and relaxed tone in her promise of ‘a great deal of continuity’ in monetary policy. She ignored recent flaws in economic data and pledged to continue tapering, whilst also stressing the need to look beyond unemployment as an indicator of economic strength.
Ms Yellen did go further than her predecessor in acknowledging emerging market turmoil, admitting that they have been ‘watching the volatility closely’. She made it clear however that in this global economy it’s every country for themselves, effectively stating that only domestic concerns would stir the hand of the Fed.
Early this morning the House voted through the bill that sees the US government’s borrowing limit raised unconditionally; the dollar trickled upwards as a result.
Today sees only minor data from the US, including mortgage payments and the monthly budget statement.