Morning Report: 17 March 2017

17th March 2017 By: Ranko Berich

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GBP.  Sterling has recovered this month’s losses against the US Dollar after the Bank of England yesterday was considerably more “hawkish” than markets had anticipated. Specifically, Kristin Forbes, from the Monetary Policy Committee, voted for a hike of 25 basis points, dissenting from her colleagues. The Bank of England is clearly becoming more concerned about inflation, as the majority of the MPC see the chance of a rate hike very likely in the near future, having even discussed the withdrawal of stimulus. No data will be released today, but sterling could keep gaining traction as markets continue to digest the likelihood of an interest rate hike sooner rather than later.

EUR.  The reduction in political uncertainty enjoyed after the Dutch elections is still boosting the euro, which is higher today against most of the G10 currencies. Due to the strength of the Eurozone data over the last months and lower probabilities of a populist political surge in the Eurozone, the euro could well continue to appreciate over the next days, although new surprises coming from the French elections cannot be entirely discarded. The eurozone’s trade balance data is released today at 10.00 GMT.

USD.  The dollar continues to suffer the consequences of an extreme bullish positioning unwinding, as markets keep reassessing the probabilities of an interest rate hike in June, which have gone down from +50% to 45% since the Federal Reserve meeting. US treasury yields recovered some of the lost ground yesterday, but they are falling back again this morning, indicating that markets could still be far from having priced in the current information. The capacity utilization rate is released today at 13.15 GMT, alongside industrial production.

CAD.  The loonie holds the gains registered versus the USD this week after the Federal Reserve meeting, supported by stable crude oil prices that have recovered some 5% from this week’s lows. Canadian manufacturing sales are released at 12.30 GMT. Next week’s inflation data will be worth keeping an eye on.

UK news

FT: Scotland could abandon currency union with UK, says Alex Salmond. Westminster delay will increase nationalist support, warns leader in Commons. Scottish Nationalists are prepared to change their blueprint for independence and abandon previous proposals for a currency union with the rest of the UK, the former first minister Alex Salmond has said. Mr Salmond — who led the unsuccessful 2014 campaign — also warned Theresa May that attempts to delay a second referendum until after Brexit will backfire and lead to a rise in support for independence.

FT: Sterling’s calm faces test as Brexit talks near. Pound rallies but investors see further trouble building. Despite another turbulent few days in British politics, the pound is ending the week on firmer footing. Sterling brushed off the latest bout of Brexit nerves and fresh worries about a break-up of the UK, trading 1.5 per cent higher against the dollar on Thursday to $1.23. Its revival was aided by a dovish Federal Reserve and a hawkish Bank of England. However, there are still plenty of currency-watchers who see further trouble ahead. Many are readying for another leg down — a drop below $1.20.