The euro and the pound both jumped broadly higher when the morning London session rolled around.
The Kiwi and the Greenback, meanwhile, were getting swamped by sellers and were the worst-performing currencies of the session.
- U.K. public sector net borrowing: £6.2B vs. £7.2B expected, -£0.8B previous
- CBI’s U.K. industrial order expectations: -3 vs. 2 expected, 4 previous
According to a Reuters report (that cited two unnamed sources), the U.S. and China are supposedly working out a deal to end the seven-year ban against China’s ZTE Corp in exchange for a pledge from China to buy more U.S. agricultural products.
The Reuters report also cited China’s Ministry of Finance as confirming earlier rumors that China will open up its car market by slashing tariffs on imported cars from 25% to 15%, effective July 1 of this year.
BOE’s Vlieghe speaks
Earlier today and ahead of the BOE’s inflation report hearing, BOE MPC Member Gertjan Vlieghe had his reappointment hearing before the Treasury Committee.
And when asked about monetary policy, Vlieghe had these to say:
“Provided the headwinds from Brexit uncertainty do not intensify in the near term, and ultimately fade over the coming years, I think policy rates are likely to rise, in my central view, by 25bp to 50bp per year over the forecast period.”
“That is slightly higher than the conditioning assumption for interest rates in the May 2018 Inflation Report. That is a forecast, not a promise, and will depend on how the economy evolves.”
In other words, the BOE will likely hike once or twice a year, every year, for the next three years, assuming that the U.K. economy continues to evolve as expected and Brexit uncertainty does not cause the U.K. economy to deteriorate further.
BOE inflation report hearing
BOE Guv’nah Mark Carney and other top BOE officials were grilled before Parliament’s Treasury Committee earlier.
Carney and company reiterated the BOE’s view that rates will likely continue to rise at a “very gentle” pace.
And when Carney was asked if the BOE will publish its projected path for the Bank Rate, Carney that the BOE doesn’t have any plans to and he gave the following explanation:
“There were arguments for and arguments against. I think the risk of it being interpreted as a promise, as a commitment are real, there are risks of procrastination once you put a path out there… there’s risk of pre-commitment as well, you’ve got a path you feel more obliged for reasons of credibility to follow it through.”
Carney also touched upon the weak Q1 GDP growth and he had these to say:
“Our view is not that circumstances changed in the first quarter, it’s more likely to have been temporary and idiosyncratic factors that slowed the economy.”
“We don’t think much of that lost output (from Q1) is going to be made up so that’s one of the reasons why we have a 0.4 forecast for the second quarter..”
Michael Saunders disagreed, though, and he had these noticeably more optimistic things to say on the U.K. economy.
“I differed from the majority in two areas. First I put more weight on the view that the weakness in Q1 GDP reported by the ONS is either erratic as a side effect of the weather or possibly may be revised away.”
“I suspect that the jobless rate will fall a little further than our base case over time.”
According to a report from ANSA, the 5-Star Movement and the League party supposedly want Paolo Savona as the economy minister of the new government.
This is rather problematic (for euro bulls) since Savona is a die-hard Eurosceptic and has used, uh, “colorful” language in his very vocal criticism of the E.U. and the euro. And again, he’s the top pick to be the economy minister.
Risk-friendly day in Europe
Europe enjoyed another risk-friendly day during today’s morning London session since the major European equity indices were broadly in the green.
And according to market analysts, the risk-on vibes in Europe were due to fading political uncertainty in Italy and the news that China will slash tariffs on cars and car parts.
- The pan-European FTSEurofirst 300 was up by 0.14% to 1,554.66
- Germany’s DAX was up by 0.39% to 13,128.80
- The blue-chip Euro Stoxx 50 was up by 0.18% to 3,578.75
U.S. equity futures were also in the green, which is another sign that risk appetite was the prevalent sentiment.
- S&P 500 futures were up by 0.19% to 2,738.25
- Nasdaq futures were up by 0.38% to 6,942.00
Global bond yields rise
Another sign that risk-taking was the name of the game in Europe was the broad-based rise in global bond yields.
- German 10-year bond yield down by 8.63% to 0.567%
- French 10-year bond yield down by 0.98% to 0.832%
- U.K. 10-year bond yield down by 2.97% to 1.519%
- U.S. 10-year bond yield down by 0.44% to 3.078%
- Canadian 10-year bond yield down by 0.20% to 2.491%
Major Market Mover(s):
The euro jumped higher across the board when the morning London session rolled around. There was little follow-through buying on most EUR pairs, but the euro was able to hang on to its gains and was in the lead by the end of the morning London session.
It’s not clear what caused the euro to jump higher at the start of the session. However possible reasons include easing political uncertainty in Italy, the Greenback’s weakness, and China’s announcement that it would slash tariffs on imported cars since that’s good news for Germany, the Euro Zone’s economic powerhouse.
As for the later selling pressure that capped the euro’s gains, that appears to be in response to the ANSA report about Savona being the top pick for economy minister.
EUR/USD was up by 48 pips (+0.41%) to 1.1809, EUR/AUD was up by 42 pips (+0.27%) to 1.5540, EUR/NZD was up by 84 pips (+0.50%) to 1.6981
Like the euro, the pound jumped broadly higher at the start of the session, failing only against the euro.
And the pound’s jump appears to be a reaction to Vlieghe’s comment that the BOE is on track for 1-2 hikes every year for the next three years.
BOE Guv’nah Carney and company didn’t really say anything that’s all that new and Saunders is a well-known hawk, so the pound didn’t get a lot of follow-through demand after that.
GBP/USD was up by 37 pips (+0.28%) to 1.3455, GBP/AUD was up by 25 pips (+0.14%) to 1.7707, GBP/NZD was up by 70 pips (+0.37%) to 1.9348
The Greenback took a step back during today’s morning London session, even though there were no apparent catalysts. And we can’t really point to U.S. bond yields since they were on the rise for most of the session before dipping later on.
At any rate, there’s no clear reason for the Greenback’s weakness, but it’s possible that China’s announcement that it would slash tariffs on imported cars convinced traders to upgrade their growth outlook for Germany and the Euro Zone as a whole, causing the euro to strengthen at the Greenback’s expense.
USD/JPY was down by 27 pips (-0.24%) to 110.85, USD/CHF was down by 33 pips (-0.34%) to 0.9951, USD/CAD was down by 16 pips (-0.12%) to 1.2765
The Greenback was weak but the Kiwi was even weaker, which is kinda wonky since commodities were mostly in the green and risk-taking was the name of the game in Europe and U.S. equity futures were hinting that risk-taking may carry over into the U.S. session. Also, there was news that the E.U. had agreed to start trade talks with Australia and New Zealand, which should have been good for the Kiwi.
Anyhow, it’s possible that the rise in global bond yields may have negated the Kiwi’s own yield advantage. It’s also possible that prospects of stronger growth in Germany and the Euro Zone as a whole because of China’s announcement that it would slash tariffs on imported cars may have also convinced traders to abandon the Kiwi in favor of the euro.
NZD/USD was down by 11 pips (-0.17%) to 0.6948, NZD/CHF was down by 29 pips (-0.43%) to 0.6920, NZD/JPY was down by 25 pips (-0.33%) to 77.08
Watch Out For:
- 12:30 pm GMT: Canada’s wholesale sales (0.8% expected vs. -0.8% previous)
- 1:00 pm GMT: CB’s Chinese leading index (1.7% previous)
- 2:00 pm GMT: Richmond Fed’s manufacturing index (9 expected vs. -3 previous)