Pound Slips Thanks to Possibility of Additional BoE Rate Cut

Chinese Monetary Policy Action Benefits Australian Dollar

After the People’s Bank of China (PBoC) announced fresh monetary loosening the Australian Dollar found some renewed support against its rivals. With global monetary policy looking set to ease further market risk appetite began to recover, in spite of the lingering spectre of the Covid-19 pandemic. While worries over the ultimate outlook of the Australian economy remain this was not enough to hold AUD exchange rates down ahead of the weekend.

Even so, any resurgence in risk aversion could easily see the Australian Dollar fall back out of favour today.

Pound Stumbles as BoE Leaves Door Open to Further Rate Cut

The mood towards the Pound soured as markets reacted to the release of the minutes from Bank of England’s (BoE) emergency policy meeting. As policymakers expressed a willingness to cut interest rates further if necessary investors were quick to pile out of GBP exchange rates. The prospect of interest rates falling to 0%, or even entering negative territory, cast a significant shadow over the Pound during trade on Friday.

Unless the Rightmove house price index demonstrates signs of resilience GBP exchange rates look set to remain under pressure in the near term.

Euro Recovers as Germany Announces Spending Plans

A surprise announcement that Germany will boost government spending in order to shore up its economy in the face of Covid-19 encouraged the Euro to push higher. As Germany has previously proved resistant to breaking its preference for fiscal restraint this move prompted an upswing in investor confidence. With the EU also set to greenlight higher spending worries over the outlook of the Eurozone economy temporarily eased.

Even so, as long as the economic situation in Italy continues to deteriorate the potential for greater Euro gains appears limited.

Recover in Market Sentiment Diminishes US Dollar Strength

With the global response to Covid-19 stepping up once again the appeal of the safe-haven US Dollar remained relatively muted. As investors unwound earlier risk-off trades USD exchange rates struggled to hold onto their positive momentum. Sharp declines in February’s US import and export price indexes also put a dampener on the US Dollar, especially in the face of speculation that further Federal Reserve policy action is on the table.

Any major deterioration in global market sentiment could still see USD exchange rates trending higher once again, though.

Canadian Dollar Weakness Limited as Oil Price Slide Eases

While the decline in oil prices eased up ahead of the weekend, benefitting from reduced market anxiety, this was not enough to give the Canadian Dollar any real boost. As the oil market is unlikely to stabilise as long as worries over Covid-19 persist the possibility of another selloff limited the strength of CAD exchange rates. A modest uptick in existing home sales helped to put a floor under the Canadian Dollar, however.

In the absence of any fresh domestic data CAD exchange rates look vulnerable to any fresh shifts in the mood of markets.

Manufacturing PMI Recovery Boosts New Zealand Dollar

Defying fears over the global economic outlook, February’s New Zealand manufacturing PMI jumped from 49.8 to 53.2 to return to growth territory. This signal of solid growth helped the New Zealand Dollar to gain ground, adding to a general improvement in market risk appetite on Friday. Although the latest food price index pointed towards softer inflationary pressure NZD exchange rates largely shrugged off the disappointing data.

Another strong showing from the services PMI may give the New Zealand Dollar a solid boost against its rivals this morning.

Data Releases

16th March 07:30 NZD Services PMI (FEB) 56
16th March 10:01 GBP Rightmove House Price Index (YoY) (MAR)

Louisa Heath