Pound Leaps After Shock Departure of UK Chancellor

Weaker Inflation Expectations Drag on Australian Dollar

February’s consumer inflation expectations survey fell short of forecast, showing a sharp dip from 4.7% to 4.0% as consumer confidence appeared to diminish. This left the Australian Dollar on the back foot yesterday, denting existing optimism over the domestic outlook. The mood of investors soured further in response to news that new Covid-19 cases saw a sharp increase on Thursday, suggesting that the infection rate has yet to peak.

As long as worries over the global growth outlook linger the potential for Australian Dollar gains is likely to prove limited.

Shock Change in UK Chancellor Drives Pound Bounce

The surprise resignation of Chancellor Sajid Javid during the cabinet reshuffle saw the Pound trending sharply higher across the board last night. Javid’s departure just weeks before the unveiling of the next budget failed to provoke any particular anxiety among investors, in spite of the limited experience of his replacement. With Downing Street looking set to assume still greater control over the Treasury the prospect of higher spending encouraged Pound buying.

Even so, with the EU looking at risk of hardening its negotiating stance support for the Pound could easily fade in the near term.

Unchanged European Commission Forecasts Unable to Boost Euro

While the European Commission left its growth forecasts unchanged the Euro still came under pressure during Thursday’s European session. As the Commission confirmed that Italy, Germany and France were at the bottom of its 2020 growth table confidence in the Eurozone outlook naturally diminished. A fresh warning over the potential negative impact of the Covid-19 outbreak also helped to fuel Euro selling pressure.

If the fourth quarter German gross domestic product falls short of forecast to deliver a negative reading this could drive the Euro into a deeper decline against its rivals.

US Dollar Sees Limited Benefit from Inflation Uptick

A sharper-than-expected uptick in the US consumer price index offered encouragement to the US Dollar, even though the measure is not the Federal Reserve’s preferred gauge of inflationary pressure. With market risk appetite limited USD exchange rates held onto a steady footing against many of the majors. However, given the increasingly dovish outlook of the Fed the US Dollar struggled to make any significant headway.

A solid advance retail sales figure may offer USD exchange rates further support tonight.

BOC Comments Fail to Lift Canadian Dollar Demand

Optimistic comments from Bank of Canada (BOC) Governor Stephen Poloz failed to shore up the Canadian Dollar overnight. Even though Poloz indicated that the Canadian economy is in a good place at present CAD exchange rates weakened in response to the wider deterioration in market risk appetite. While oil prices saw a modest uptick this was not enough to prevent Canadian Dollar losses.

Tonight’s existing home sales data may put a floor under CAD exchange rates heading into the weekend.

Global Growth Jitters Limit New Zealand Dollar Support

The New Zealand Dollar lost some of its steam yesterday as the impact of the Reserve Bank of New Zealand’s (RBNZ) confident turn faded. With market risk appetite dented by the sharp daily increase in Covid-19 cases support for NZD exchange rates faded. Even so, the New Zealand Dollar was still able to hold onto a positive footing against its other risk-sensitive rivals.

A solid rebound in January’s manufacturing PMI could give NZD exchange rates some fresh traction this morning.

Data Releases

February 14th 07:30 NZD Manufacturing PMI (JAN) 51
February 14th 17:00 EUR German Gross Domestic Product (QoQ) (4Q) 0.1%
February 14th 23:30 USD Advance Retail Sales (MoM) (JAN) 0.3%
February 15th 00:00 CAD Existing Home Sales (MoM) (JAN) -0.1%

Louisa Heath