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January 2016

Daily Currency Insight

Published: Thursday 21 January 2016

  • UK unemployment at a 10 year low
  • Bank of Canada leave rates on hold
  • ECB expected to do the same
The volatility around the Pound continued yesterday as it was reported that UK unemployment was now at its lowest level for more than 10 years. The unemployment rate has fallen to 5.1%, the lowest since 2005. Sterling initially bounced on the news however wage growth remains weak at only 1.9%. Governor Carney has stated that the decline in wages was one of the reasons why the Bank of England will be forced to leave interest rates on hold so this gives more ammunition to Sterling to dive. For now, any rally in the Pound will be short lived.
Yesterday the Bank of Canada left interest rates on hold in what must have been a very close call. The BoC did, however, downgraded economic projections. In his press conference Governor Poloz noted that the weakness of the Canadian dollar was offsetting lower oil prices and further depreciation would raise inflation expectations. It looks like a matter of time before rates are cut again and the loonie should remain weak while BOC remain accommodative.
Today the focus will undoubtedly be in Europe as the European Central Bank meet to discuss policy. In my opinion, it is clearly too soon for the bank to make any adjustments to interest rates or quantitative easing but the market will certainly be listening to the following press conference with interest. The March meeting will come into focus and it will be interesting to see if Mr Draghi begins to steer expectations towards more easing in future if the data continues to falter. Markets were disappointed with the extent of QE in December so of course there will now be some issues with credibility but for now I think they will give the ECB the benefit of the doubt.

Expect significant volatility around the announcement at 12.45 and the subsequent press conference at 13.30. Contact your Halo Financial Consultant for more information or give us a call +44 (0)20 7350 5474.

FX Research by Ricky Nelson
Daily Currency Analysis with Alastair Sweetman
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