Daily Market Update 17/03/2016

Please find below today's update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements.

Headlines

• Pound down on lower gov growth forecasts – Unemployment remains at 10-year low.
• GBP/EUR down on UK budget – BoE announcement on tap.
• GBP/USD up 160 pips – Fed slashes hiking outlook.
• ‘Aussie’ near 14-month high – Unemployment down to 5.8%.

Sterling

There was good news and bad news for the Pound yesterday.

The good news was that unemployment remained at a 10-year low of 5.1%, 116,000 new jobs were created and wage growth accelerated from 1.9% to 2.1%.

The bad news was that Chancellor George Osborne slashed the 2016 UK growth forecast from 2.4% to 2.0% and cut public spending over the next four years by -£3.5 billion.

Sadly for Sterling, it was Osborne’s Spring budget and the growth downgrades that stole traders’ attention rather than the upbeat labour market figures.

The Pound stands to lose more ground this afternoon if the Bank of England strikes a dovish tone, as most analysts anticipate it will.

Euro

The Pound to Euro exchange rate softened slightly yesterday as investors reacted to the latest UK budget.

The growth downgrade was considered the most important element of the budget in terms of impact on the Sterling exchange rate but most media outlets were captivated by Osborne’s surprise decision to unveil a tax on sugary drinks. The tax aims to bring in around £530 million, which will be spent on bolstering primary schools’ sports facilities.

Some claimed the sugar tax was employed by Osborne to divert attention away from the fact that he had missed his target of reducing the UK deficit as a proportion of GDP, or that he was cutting disability benefits by -£1.3 billion while raising the level at which people start paying the top rate of tax. But celebrity chef and health campaigner Jamie Oliver was pleased with the directive.

The single currency could come back under a little bit of pressure today if Eurozone inflation data shows that price pressures shrunk -0.2% in February as expected.

US Dollar

‘Cable’ jumped by around 160 pips last night as traders reacted to the Federal Reserve’s latest policy announcement. The Fed left rates on hold at 0.25% as expected but the bulls were upset by a modification to the central bank’s projection chart. In December policymakers were expecting to see interest rates rise by around 100 basis points in 2016 but due to ‘economic risk from abroad’ the Fed cut its outlook to 50 basis points in March.

The decision to slash the hiking outlook was seen by most traders as the equivalent of monetary easing and subsequently sentiment towards the US Dollar tanked and investors’ appetite for risk soared.

Canadian Dollar

The Pound lost out on almost two cents to the Canadian Dollar yesterday as a double-whammy of softer UK GDP prospects and improved risk sentiment bolstered demand for the ‘Loonie’ against Sterling.

Risk assets shot higher across the board following the Fed’s decision to pullback on rate hikes this year, which allowed the Canadian Dollar to surge to a ten-month high against the Pound.

Australian Dollar

Sterling slid to a near-14-month low against the Australian Dollar earlier this morning as GBP/AUD suffered from a triple-whammy. The Pound weakened on reduced GDP forecasts while the ‘Aussie’ garnered support in response to the Fed’s looser monetary policy outlook and a better-than-expected unemployment report. The Australian jobless rate slid from 6.0% to 5.8%, confounding predictions for no change.

New Zealand Dollar

The Pound to New Zealand Dollar exchange rate tumbled by around three cents yesterday as risk sentiment swelled on reduced Fed rate hike bets. The risk-sensitive ‘Kiwi’ was also boosted by a fourth quarter GDP print of 0.9%, which beat expectations of 0.7%.

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