Sterling volatility versus the dollar jumped to the highest level since 2010 as traders priced in the uncertainty of an election that looks set to produce no clear winner. The pound fell against the U.S. currency as the Bank of England kept interest rates at a record-low 0.5 percent. Meanwhile, minutes of the latest Federal Reserve meeting showed policy makers haven’t ruled out raising borrowing costs in the U.S. in June, boosting demand for that nation’s currency. Traders are also paying more to hedge against sterling losses over the next month as concern over the effect of the May 7 election outweighs signs of economic growth. A measure of anticipated price swings in the pound against the dollar in a month’s time climbed as much as 2.9 percentage points to 13.64 percent, the highest since June 2010, according to data compiled by Bloomberg. That’s up from 6.9 percent at the end of last year. Britain posted its widest trade deficit in seven months in February as sales to the U.S. and other countries outside the European Union declined sharply. The goods shortfall of 10.3 billion pounds ($15 billion) compared with an upwardly revised deficit of 9.2 billion pounds in January, the Office for National Statistics said in London yesterday. Economists predicted a gap of 9 billion pounds for February. The figures leave a question mark over whether trade continued to contribute to economic growth in the first quarter. Between December and February, the total deficit including services narrowed to 6.5 billion pounds from 6.9 billion pounds in the period through November.
The euro was trading lower against the U.S. dollar this morning, hovering close to a three-week low as demand for the greenback remained supported by hopes for a U.S. rate hike by the middle of the year. EUR/USD hit 1.0655 during late Asian trade, the session low; the pair subsequently consolidated at 1.0665. The pair was likely to find support at 1.0578, the low of March 18 and resistance at 1.0888, the high of April 8. The euro was higher against the pound, with EUR/GBP adding 0.17% to 0.7257 (GBP/EUR 1.3780). European stocks climbed, extending an all-time high and heading for the biggest weekly gain since January. The Stoxx Europe 600 Index advanced 0.4 to 410.78 at the opening this morning. It surpassed a record reached in 2000 on Thursday after data showed German industrial production beat forecasts, fueling optimism the euro-area economy is improving. The benchmark gauge has climbed 3.2 percent in a holiday-shortened week. It has rallied 20 percent in 2015, entering the seventh year of a bull run, as the European Central Bank started a quantitative-easing program.
The dollar remained mostly higher against a basket of other major currencies yesterday, after data showed that U.S. jobless claims rose less-than-expected last week and as expectations for a near-term U.S. rate hike continued to support. In a report, the U.S. Department of Labor said the number of individuals filing for initial jobless benefits in the week ending April 4 rose by 14,000 to 281,000 from the previous week’s total of 267,000. Analysts had expected initial jobless claims to rise by 18,000 to 285,000 last week. The dollar had strengthened after New York Federal Reserve President William Dudley said Wednesday that the timing of a rate hike depends on economic data and added that a rate hike in June could still be possible if the labor market recovery remained strong. Fed Governor Jerome Powell said he would be willing to start tightening policy despite current low levels of inflation, adding the Fed could act in June if economic data over the next two months showed that the recovery remained on track. Meanwhile, Wednesday’s minutes of the Fed’s March meeting showed that several officials believe the economic outlook is likely to warrant an interest rate hike in June. The U.S. dollar index, was up 0.82% to 99.05