Pound slumps as rate hike hopes evaporate

Euro – A firmer tone to risk aversion was accompanied by a recovery for equity prices around the world and a rally in key commodity prices. EU Monetary Affairs Commissioner Olli Rehn tried to put the heart of the Eurozone back at the center of investors’ attention on Wednesday instead of having unfolding drama in Greece stealing the limelight. Mr. Rehn noted that the expansion base was now broader and had migrated from purely export-driven to self-sustaining domestic demand. Investors stopped pounding the euro and it managed to put in a temporary gain against the dollar for as long as buy orders clustered around $1.4250 remained unfilled. However, the single currency has turned to a loss for the session at $1.4231 ahead of New York trading.

Japanese yen – The yen snapped back at the dollar whose pull was less as global equity prices recovered. The MSCI Asia Pacific index rose by 1.1% having suffered for the past four days. A March tertiary industry index likely also argued in favor of a stronger yen as it declined by 6% having risen by 1% the previous month. The dollar slipped to ¥81.16 while the yen also rallied against the euro to ¥115.52.

Aussie dollar – Early buoyancy breaking a string of losses for the Aussie dollar soured after Moody’s rating agency lowered the rating of the nation’s four biggest lenders. Moody’s move brings the quartet in to line with S&P’s view and a one notch decline leaves the banks third from the top of the tree. A spokesman said that the reduction was consistent with its view on the structural sensitivity to conditions in wholesale funding risks. Additional pressure was placed on the Aussie, where buyers have long argued for a further rate rise or two, following first quarter data showing an unexpected dip in wage pressures. The year ended with wage costs rising at a 1% pace while pressure subsided in the first quarter to a 0.8% clip at a time when investors were braced for a pick-up in the pace. A DEWR reading of available skilled vacancies also surprised by falling 0.4% while the previously healthy reading of an increase of 1.7% was also wiped out in today’s revision. The Aussie slid to $1.0575 U.S. cents having earlier recorded a session peak at $1.0665 cents.

Canadian dollar – Earlier strength in the Canadian dollar has also vanished as a pre-market rally in equity index futures was reversed. The local dollar also slipped to buy $1.0252 U.S. cents ahead of a report likely to show a smaller pace of increase in the leading indicator series for April. Also out later is a report on wholesale sales for March where analysts expect a gain to reverse losses for February.

Andrew Wilkinson is a Senior Market Analyst at Interactive Brokers LLC

Note: The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

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About the Author
Andrew Wilkinson

Andrew is a seasoned trader and commentator of global financial markets. He worked for several London-based banks trading cash and derivatives before moving to the U.S. to attend graduate school. Andrew re-joins Interactive Brokers following a two-year stretch at a major Wall Street broker-dealer as their Chief Economic Strategist. His coverage of stocks, options, futures, forex and bonds regularly surfaces in global media, and over the last several years Andrew has made many TV appearances on Bloomberg, BBC, CNBC and BNN and Yahoo Finance.

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