Sterling dips in early trade

Silvana Tenreyro, a member of the Bank of England’s rate-setting committee, says she thinks negative interest rates work well. Whether getting no yield or paying a bank to hold your deposits has any effect is a highly contentious debate, but this influential LSE Professor’s comments seem to have unnerved traders because the Pound slipped in early trade. GBPUSD is down to the support level of $1.3670, and the GBPEUR rate is down to €1.1500 for the first time since 26th February.

If the Pound slips half a cent more against the US Dollar, it will have broken the uptrend evidenced from May 2020. That is a significant change, so there will be support for the Pound here. Whether it can hold the Pound up is a moot point at this stage.

As far as the mood shift in the GBPEUR rate is concerned, this has been in an uptrend since early December, and, as long as the Pound stays above €1.1440, the upwards momentum looks intact. Below there is a different story, and we will have to have seen a hard news catalyst of some sort to get that kind of reversal in motion. Sterling traders will be looking forward to the Bank of England’s Quarterly Bulletin, but it doesn’t have a history of being a market shaker, so sterling is likely to ease into the weekend without further drama.

The Euro’s strength is a little odd after German data showed a 1.6% contraction in industrial production in February and a drop in their trade surplus. The saving grace from that report is the increase of 3.6% in imports, wiping out the 3.5% contraction in January, a sign of a recovering economy. French industrial production was similarly down by 4.7% in February, so it wasn’t just a German problem. We will get some retail data from Greece and Italy and a speech from Luis de Guindos, the Vice-President of the European Central Bank, today but no more EU data, so the EUR advance is likely to lose impetus.

Canadian unemployment forecasts are good

This afternoon brings us Canada’s employment data for March. There is a good chance the unemployment rate improved to 8.0% in March with the corresponding jobs gains. That would be good for the Canadian Dollar, which has gained 2 cents against the Pound in the last three days. At C$1.7250, this pair is only half a cent above the 2021 lows, so that will be making traders nervous. If we see C$1.7150, there is a chance of the psychological barrier of C$1.70 being tested.

USD strengthens despite Fed comments and poor jobs data

The US data diary is a slim one today, but traders are still analysing Fed Chairman Jerome Powell’s comments. He believes higher inflation will be a temporary affair and that interest rates will not need to rise for an extended period. That talk of loose monetary policy would normally weaken the USD. So too would an unexpected rise in the number of new jobless claims we had that yesterday. But here we are this morning with a strengthening US Dollar. It shows what strange times we are living in.

And in the old days, you know, when pubs were open, it used to take me 10 minutes to walk to my local but 30-40 minutes to get home. The difference was staggering.

Have a good weekend.

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