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Sterling soars on Carney comments

By Jake Trask

Sterling saw some big moves yesterday as an initial sell off was reversed after Bank of England Governor, Mark Carney came to its aid. With no positive news re: Brexit weighing on the pound GBP/USD dropped from 1.2935 to 1.29 in the morning before hitting an intra-day low of 1.2855 ahead of the BoE’s quarterly Inflation Report. The news was predictably glum from Carney as warnings about a no-deal Brexit were issued once again. However the insistence that should a deal be done then there was a rosy outlook was enough for the pound to rally. Cable approached 1.30 before the rally lost steam. In Brussels PM Theresa May made little headway in negotiations with the EU however little was expected so Carneys comments were the main driver. GBP/USD trades at 1.2930.

Risk off trade permeating the markets means the dollar remains well bid in the absence of any local economic data releases. Donald Trump’s comments that he was unlikely to meet Chinese President, Xi Jinpeng before scheduled tariff rises were due was enough to push stocks lower bolstering demand for the greenback. With little top tier data coinciding with Chinese New Year this week has been relatively quiet however next week sees retail sales and inflation figures from the States which will likely move the greenback. EUR/USD trades at 1.1325 with USD/JPY at 109.80.

With no data and many Asian markets closed for holidays the euro has been dragged lower to its detriment by market sentiment. EUR/USD has fallen below 1.14 throughout the week on the back of little domestic data with next week’s German GDP number likely to be the next big market mover. A fall into technical recession could be on the cards which will likely cause policy makers at the European Central Bank to delay the timing of an interest rate hike. GBP/EUR trades at 1.1415.

The Aussie dropped further towards the .70 handle against the greenback overnight as a dovish Reserve Bank of Australia statement saw the local dollar sold off. The bank cut growth estimates on the back of headwinds caused by the US/China trade war which exacerbated earlier comments by RBA Governor, Philip Lowe that monetary policy could be loosened to stimulate the economy. AUD/USD trades at .7085 with GBP/AUD at 1.8240.

Unemployment figures are due this afternoon from Canada with markets expecting an uptick to 5.7% from 5.6%. We could see some big moves in the loonie value should there be any bid deviation from expectations on the back of thin trading conditions. USD/CAD is at 1.3315 with GBP/CAD at 1.7225.

The aforementioned dovish comments from the RBA helped drag the Kiwi lower overnight adding to its recent woes. Tuesday night’s monetary policy decision/statement looms ever closer which may see the RBNZ signal its intention to keep rates on hold for longer in an effort to insulate the economy from the effect Donald Trump’s trade offensive. NZD/USD sits at .6755 with GBP/NZD at 1.9140.