Strengthening of the Sterling
Sterling has hit its highest level in a week to the US Dollar on Thursday as expectations waned for an immediate Bank of England rate cut to follow this week’s emergency move from the U.S. Federal Reserve to contain coronavirus damage. Incoming BoE Governor Andrew Bailey dampened expectations of an inter-meeting cut late on Wednesday, telling lawmakers the central bank should wait until it has more clarity about the economic hit from the outbreak.
Money markets in Britain price in a 25 basis points rate cut at the BoE’s March meeting. Almost 50 basis points of cuts are now priced in by the end of the year, compared with none a few weeks ago before the spread of coronavirus. Goldman Sachs expects the BoE to cut interest rates by 50 basis points.
Down on the US Dollar
US Dollar and Canadian Dollar remain the worst-performing major currencies for the week and stay pressured. Both Fed and BoC s are perceived as having more room for rate cuts, comparing to, say, ECB and BoJ. Mounting fears over the fallout from the coronavirus has driven a truly tectonic shift in expectations for U.S. rates as markets wager the Federal Reserve will have to cut rates by 50 basis points for a second time this month.
Job data from US and Canada will be the primary focuses together, but they’re unlikely to alter respective policy paths. “The US Dollar has lost the single most important source of its over-valuation, a strong carry advantage,” he added, warning this could end a US dollar uptrend that has lasted since mid-2018.
Coronavirus Currency Updates
The Global spread of China’s Wuhan coronavirus continues to accelerate as it’s now affecting 90% countries and territories. Total infections reached 98424, with 3386 deaths. Oil slid 1% on Friday as worries about global oil demand and economic growth slowdown caused by the coronavirus outbreak. OPEC is expected to be cut by an extra 1.5 million barrels per day (BPD) in total until the end of 2020. The call came ahead of an OPEC+ meeting scheduled for Friday in Vienna, resulting in GBP – CAD trading over 1.73 highest since early Feb. Australia retail sales have also dropped in January, lower than expected.
Looking ahead, the main focus will be on US non-farm payrolls, but the data is unlikely to alter Fed’s easing path. US trade balance, Canada trade balance, employment and Ivey PMI will also be published.
Expected trading range for today:
- GBP/AUD 1.9532 trading down -0.21%
- GBP/USD 1.2963 trading up 0.11%
- GBP/NZD 2.0383 trading down -0.63%
- GBP/EUR 1.1505 trading down -0.28%
- GBP/CAD 1.7359 trading up 0.11%