Carney warns of Brexit risk, Euro range bound ahead of ECB meeting tomorrow
09/Μαρ/2016 • Currency Updates•
Britain’s imminent referendum on EU membership continues to occupy the national and international newswires.
Yesterday Governor of the Bank of England Mark Carney warned that a Brexit would pose the biggest risk to Britain’s financial position. Carney, somewhat criticised for his pro-EU stance, claimed that EU membership allows the UK economy to grow without risking monetary and financial stability.
The Euro was range bound against its major peers on Tuesday, although received temporary support from an upward revision in Eurozone growth figures.
Economic growth in the Euro-area was unexpectedly revised higher to 1.6% year-on-year yesterday, allaying some fears of stagnation that were caused by the recent string of underwhelming economic indicator data.
This helped prevent any meaningful depreciation of the Euro ahead of tomorrow afternoon’s crucial European Central Bank meeting. Join the ECB discussion tomorrow on Twitter during the press conference, using the hashtag #EburyChat16.
Meanwhile, the Japanese Yen and Swiss Franc gained after dismal trade figures in China led to a modest flight to safe-haven currencies.
Manufacturing and industrial production data released in the UK this morning are expected to show a modest improvement for January, and hopefully reassure markets that there is no pronounced slowdown in the domestic UK economy.
Interest rate decisions in Canada and New Zealand could draw the most focus among the G10 currencies today. We see a strong chance both central banks will cut rates later in the year amid slowing growth and weakening inflation dynamics.
Major currencies in detail:
Sterling ended lower against both the US Dollar and Euro yesterday, by -0.2% and -0.1% respectively.
Speaking in a heated debate in the Commons on Tuesday, Governor Carney’s pro-EU stance was overwhelmingly evident. He did, however, suggest that the central bank was on standby to pump billions of Pounds into the financial system should a Brexit create financial turmoil.
Fellow monetary policy committee member Martin Weale also spoke during late London trading yesterday. Weale, one of the two MPC members to vote for a rate increase in recent months, dismissed suggestions that interest rates should be cut in the UK, claiming it was ‘appreciably more likely’ rates will increase over the next two years.
The latest Reuters poll of economists released yesterday now points to the first post-financial crisis UK rate hike taking place in Q1 2017.
In terms of economic data, retail sales grinded to a halt in February according to the British Retail Consortium. Sales increased by just 0.1% in February according to the monthly measure, a significant slowdown from the 2.6% recorded in the first month of the year.
The single currency ended 0.2% lower against the US Dollar yesterday, although was mostly range bound in the lead up to this Thursday’s ECB announcement.
An increase in government spending and investment was enough to compensate for a slowdown in trade in the final quarter of last year. GDP growth was revised up from the initial 1.5% estimate, although this news will likely do little to convince ECB policymakers to hold fire on ramping up monetary stimulus measures on Thursday.
Earlier in the day, industrial production in Germany exceeded expectations. Output in January soared by 3.3% for the month, its largest monthly increase since 2011.
With no economic data or announcements in the Eurozone today, all attention will turn to the European Central Bank’s monetary policy meeting on Thursday.
The US Dollar traded within a narrow band yesterday, ending 0.15% higher against its major peers.
Announcements in the US economy were scarce on Tuesday, with the US Dollar little moved throughout the day as a result.
Small business optimism soured in February according to figures released yesterday. The monthly index declined to 92.9 from 93.9, its lowest level in two years. Worryingly, the pace of hiring among small businesses slowed, in sharp contrast the last week’s strong nonfarm payrolls report, which showed the US economy added 242,000 jobs last month.
Today looks set to be another relatively light day in terms economic announcements in the US. Dollar movements will likely be limited ahead of more meaningful announcements later in the week. Investors will also have one eye on next week’s Federal Reserve meeting.
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