Central Bankers Predicted to Spark Volatility for GBP/EUR, GBP/USD
Today sees public appearances from several central bankers, including the Bank of England’s (BoE) Ben Broadbent and Jon Cunliffe, the European Central Bank’s (ECB) Benoît Cœuré and the Federal Reserve’s John Williams. All of these speeches have the potential to cause significant volatility as traders look for clues on monetary policy and economic wellbeing.
Strong Eurozone Unemployment Figures Fail to Boost Euro
The number of people out of work in the Eurozone fell to a four-and-a-half year low in January, with the rate of joblessness shrinking ten basis points to 10.3%. 105,000 people secured jobs in January, taking the overall unemployment figure down to 16.65 million. In other good news, the Italian economy grew at an annualised rate of 0.8% in 2015, surpassing forecasts of 0.6% growth.
The ill health of the UK’s manufacturing sector continues to weigh on Pound Sterling (GBP), while the Euro and US Dollar are also weakened today. The Euro (EUR) is soft after yesterday’s inflation data disappointment increased the likelihood of more stimulus from the European Central Bank (ECB), while the US Dollar (USD) is sliding on the dovish remarks of a senior Federal Reserve official and in anticipation of the ISM Manufacturing index release.
Pound Sterling to Euro (GBP/EUR) Exchange Rate Advances: Increasing Calls for ECB Stimulus Measures
Weakness in the Euro has been the major driver in Pound appreciation today, as two doses of bad news from the UK manufacturing sector are keeping Sterling gains contained against many of the other majors. The seasonally-adjusted Markit PMI for February showed a significant drop in manufacturing activity, with the index falling from 52.9 to 50.8. At the same time, the latest survey from the Confederation of British Industry (CBI) revealed that the net balance of firms registering growth in output in the manufacturing sector was 0%.
With less than two weeks to go, Monday’s surprisingly poor Eurozone inflation data has increased market anticipation for more monetary stimulus from the European Central Bank (ECB). The Eurozone entered deflation for the third time in twelve months, raising concerns over the effectiveness of loose monetary policy.
On the one hand, the ECB is facing significant pressure to do more to stimulate the economy, but on the other it is coming up against growing doubt over the effectiveness of its policies. Currently, predictions for the March 10th meeting include a further cut to the already negative deposit rate and an increase in the rate of monthly asset purchases up from €60 billion.
All the major UK and Eurozone data for today has already been released, although a speech from hawkish ECB policymaker Sabine Lautenschläger could spark movement if she argues against further easing as expected.
Pound Sterling to US Dollar (GBP/USD) Exchange Rate Strong on Fed Speculation and Imminent Data
New York Federal Reserve President, William Dudley, has released prepared remarks ahead of a speech in China in which he warns of the heightened downside risks to the US economy. Dudley, the latest US policymaker to speak in recent days and one of the most influential senior Fed officials, believes that weak energy prices and falling consumer confidence are responsible for soft inflationary pressures. If the current market turmoil were to continue, he claims, it could cause a ‘more significant downgrade’ to his economic outlook for the United States.
His speech has already contributed to a drop in market expectations. Federal funds futures are currently pricing in just an 8% probability of a rate hike at the next policy meeting; a drop of -4% on the previous day. Futures had yesterday suggested the market was anticipating a hike in December, but the probability of this happening has now dipped back below 50%.
All eyes will be on the US ISM Manufacturing index for February, which last month shocked analysts by showing that the sector had contracted, despite an anticipated rise in production activity. This month’s index is expected to show that the sector remained in contraction, although the rate of decline is predicted to have slowed marginally.
Current GBP, EUR, USD Conversion Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trending in the region of 1.2838, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trading around 0.7788.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trading around 1.3949, while the US Dollar to Pound Sterling (USD/GBP) exchange rate is trending in the region of 0.7169.