Inflation Data Drives GBP, USD and NZD

Published: 17 May at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Greece,

Pound Sterling
Pound Sterling started the session in a strong position, but poor inflation figures and further ‘Brexit’ debates have since weakened the UK asset. Consumer prices printed below expectations, slowing to 0.3% on the year, with core price growth slipping to 1.2%. Markets didn’t initially react to the data, perhaps having expected a correction following the boost to last month’s figures from the Easter holidays. Meanwhile, it was reported that David Cameron had planned how to mobilise the support of businesses in favour of remaining in the EU before he had finished concluding his EU negotiations. Boris Johnson used the fact that the Prime Minister claimed he would campaign for a ‘Brexit’ in the event he did get the changes to the UK’s membership he wanted to suggest this meant the negotiations had been ‘a fiction’.

Euro
The International Monetary Fund (IMF) created another hurdle in the Greek debt negotiations, weakening hopes of an imminent resolution. In exchange for the Fund’s participation in the Greek bailout, the IMF wants debt relief measures to continue until 2040. The interest rate on borrowed funds would be set at 1.5% and interest payments would not have to be made until the loans became due. This would allow Greece to keep its debt service levels below 15% of GDP, but the proposal is beyond what Eurozone creditors had expressed a willingness to do. As a result, the Euro has weakened today.

US Dollar
Inflation may have risen in line with expectations, but it seems that traders think it won’t be enough to justify rate hikes. The inflation data had been billed by many as the key data to influence the Fed’s interest rate decision. The Fed’s John Williams commented that it made sense to raise interest rates two or three times in 2016, but Fed funds futures have shown only a marginal increase in rate hike expectations for June, with the odds creeping up from around 4% to 7.5%.

Australian Dollar
The Australian Dollar has performed bullishly today after the release of the minutes from the latest Reserve Bank of Australia (RBA) minutes. Traders reacted positively to the revelation that the latest rate cut was the subject of much debate among policymakers. Previously, markets had assumed the RBA was very dovish, but the minutes suggest that the latest rate cut could have been made in isolation.

New Zealand Dollar
Low inflation expectations originally weakened the New Zealand Dollar today. Markets were concerned that the Reserve Bank of New Zealand (RBNZ) would cut rates again in response. However, the New Zealand Dollar managed to recover thanks to the strong risk appetite created by the RBA minutes and strong oil prices. Later, a 2.6% rise in dairy prices at the latest auction helped boost the ‘Kiwi’ further.

Canadian Dollar
Disappointing manufacturing data and the potential return of wildfire to the Fort McMurray area has weakened the Canadian Dollar today. Oil sands production has already taken a large hit, causing many economists to cut their GDP forecasts for 2016. The news that 8,000 workers have been advised to evacuate again could suggest producers will be forced to curb operations again, further hitting GDP.

As of Tuesday, 17th May 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.2779, GBP USD exchange rate was 1.4456, GBP AUD exchange rate was 1.9746, GBP NZD exchange rate was 2.1257, and GBP CAD exchange rate was 1.8663.

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