Daily Afternoon Report 22-03-2016 by TradersTrust
Sterling extended steep losses against the dollar and the euro into a second day on Tuesday, as safe haven assets gained following explosions in Brussels and as uncertainty over Britain’s future in the European Union continued to weigh.
The safe haven dollar strengthened against sterling following two explosions at the departure terminal of Brussels airport, casing several fatalities. Another explosion occurred at a metro station, close to European Union institutions shortly afterwards, sparking security alerts across western Europe. The pound was also hit by lackluster U.K. inflation data.
The Office for National Statistics said the consumer price index remained steady at 0.3% in the year to February, falling short of economist’s expectations for a pick up to 0.4%. Underlying inflation, which excludes more volatile food and fuel prices rose 1.2% in the 12 months to February, in line with forecasts and unchanged from the previous month. The disappointing data indicated that the Bank of England will keep interest rates on hold at record lows for longer. In a separate report, the ONS said U.K. public sector borrowing fell less than expected in February to £7.1 billion.
The smaller than expected decrease in public borrowing put Chancellor George Osborne on track to miss his target for cutting the budget deficit in the current financial year, with one month to go until the end of the tax year. Osborne is already under fire for proposing cuts to disability welfare payments in last week’s budget. The government said on Monday it was dropping the plan to cut disability benefits.
The resignation of Brexit supporter and Works and Pension Secretary Iain Duncan Smith on Friday over the planned welfare cuts highlighted the rift in Prime Minister David Cameron’s Conservative Party ahead of the June 23 referendum. Sterling fell to seven-year lows against the pound last month amid fears that a British exit from the EU would hit economic growth and threaten foreign investment in the U.K. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 0.95.48.
The dollar remained supported as comments by Federal Reserve officials boosted expectations for interest rate hikes in the coming months. Atlanta Fed President Dennis Lockhart said Monday the economy had enough momentum to justify a rate hike, possibly as soon as the Fed’s April meeting.