Currency Note

Super Thursday not all that super…

By Christopher Nye May 12th, 2017

Super Thursday

Yesterday, the Bank of England cut its growth forecasts and predicted higher inflation on ‘Super Thursday’. The BoE’s monetary policy committee did vote to leave UK interest rates unchanged at 0.25% but warned households that living standards will fall later this year as the impact of Brexit begins to be felt.

Interestingly, the minutes included a warning that its forecasts were based on Britain achieving a ‘smooth’ Brexit – which there is no real guarantee of at the moment. The world will be watching the developments over the next couple of years.

Meanwhile, here at Smart Currency Business we’ve been working on the latest set of quarterly currency forecasts. In what has been a remarkably volatile year so far, we outline some of the things to look out for in the coming months. If nothing else, the events of 2017 demonstrate the importance of having an effective currency risk management strategy in place.

GBP: sterling slides as Bank of England weaken forecasts

Sterling weakened as the BoE’s ‘Super Thursday’ announcements filtered through. At this month’s meeting, the BoE’s MPC voted 7-1 to keep interest rates on hold, as expected.

During the press conference and report it was revealed that UK economic growth forecasts for 2017 have been adjusted from 2% to 1.9%. In addition, they have also increased their inflation forecast to 2.7% from its February forecast of 2.4%.

The negative feelings from the announcement had actually started earlier in the day, when the UK manufacturing data posted a poor figure. Manufacturing output fell 0.6% in March, construction dipped 0.7%, while industrial output as a whole slumped 0.5% – its third straight monthly decline. This fell short of the forecast number and could point to an increased slowdown.

Today is a quiet day for the UK, but the G7 summit in Italy will take place soon, where leaders will be discussing a range of global economic issues, including growth, regulation and finance. We’ll be reporting on that as and when the news comes through.

EUR: European Commission upgrades growth forecasts

The euro stemmed the losses it’s been making over the past week as the market digested the result of the French election. While it was a quiet day on the data front, the European Commission released its growth forecast. Eurozone economic growth should go a bit faster this year than previously believed and, while growth has decreased from previous forecasts, it remains ‘elevated’.

The economic release to note today is the first release of first quarter German gross domestic product. As the region’s largest nation it will be closely watched and we could see a positive number.

USD: dollar on the back foot, but an otherwise rosy horizon

The US dollar was on the back foot for the first time in a few days yesterday as investors reversed positions following concerns after Donald Trump unexpectedly sacked FBI chief James Comey.

However, the overall outlook for the dollar looks bright, especially after upbeat US data yesterday solidified expectations of an interest rate hike by the Federal Reserve next month.

US initial jobless claims unexpectedly fell last week, while producer prices rebounded strongly in April, which gives the extra impetus for another Fed rate hike.

Sterling hit a one-week low against the US dollar but this was predominantly because of the BoE’s inflation report that showed interest rates are unlikely to rise in the next two years.

Today focuses on inflation figures in the US, with CPI and retail sales being released in the afternoon. Fed member Harker also speaks tonight.

For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business trader on 020 7898 0500 or your Private Client trader on 020 7898 0541.