Initially, the Pound surged through the resistance level at 2.0105 against the Dollar yesterday morning and rose to its strongest level in more than 25-years following the release of the minutes from the Bank of England’s last policy meeting. The report showed that the nine-strong monetary policy committee voted 7-2 in favour of a ‘no change’ this month while the two dissenters broke rank to recommend a further quarter-point rise. Despite the remaining members of the panel believing that inflation will slow over the coming months, the report yesterday reinforced expectations that UK interest rates will rise to 5.50% in May. In terms of economic data, the Pound received further support and increased the pressure on the Bank of England as a gauge of average hourly earnings showed wage growth at 4.6% in the three months to March. The Central Bank considers earnings below the 4.5% threshold as consistent with stable inflation and with consumer prices currently at the highest level in a decade, the chances of a 50 basis point hike have been severely increased. As a result, the Pound rose to the highest level against the Dollar since June 1981 but endured a sharp reversal later in the session as profit taking saw the U.S currency stabilise after hitting the 26-year low. Historically, the Pound has dropped significantly against the Dollar after breaking the $2 barrier, which was the case in 1991 and again in 1992 and therefore, Dollar buyers would be well advised to take advantage of the current level or at the very least place a stop order around the support at $2.00.
The Euro has managed to claw back some gains against the Pound in the past trading session and is also likely to achieve a record-high versus the Dollar as policy makers reinforce expectations of a further quarter-point rate hike in June. The single currency has increased dramatically against the Dollar over the past year and some European politicians have expressed concerns over moderating economic growth following the slowdown in the U.S, which should have a negative impact on Euro-zone exports. However, in spite of the Euro’s strength, policy makers within the ECB’s governing council remain optimistic that Euro-zone growth will be able to sustain momentum this year after accelerating to the fastest pace since 2000. As a result, the Euro will continue to drive forward against the weak U.S Dollar and may also make further strides versus the Pound with the ECB monthly bulletin expected to retain a hawkish rhetoric this morning.
The Dollar fell to a fresh two-year low versus the Euro yesterday and came under intense pressure versus the Pound as a number of U.S officials and policy makers remained coy about the recent Dollar decline. The U.S formally has a “strong Dollar” policy but U.S officials recognise that a weak currency should boost U.S exports and thusly reduce the ever-widening trade deficit. By the close of trading last night, the Dollar had managed to stabilise versus the Pound and the Euro and may reverse further gains this afternoon as an index of U.S leading economic probably rose in March for the first time this year. The Conference Board’s index may rise 0.1%, signalling that slowing growth in the economy is struggling to overcome the slumps in Housing and factory output this year. However, it can be argued that the ongoing strength in the U.S labour market is continues to support consumer spending and that may be reflected in the index this afternoon.
Data Released 19th April
EU 09:00 ECB Monthly Bulletin Published
U.S 13:30 Initial Jobless Claims (w/e 14th April)
U.S 15:00 Leading indicators (March)
U.S 17:00 Philly Fed Index (April)
written by Adam Solomon
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