Headlines
- UK manufacturing PMI on tap – Predicted to print at 53.6.
- Sterling hits 7-yr high vs. Euro – Greek election and ECB QE concerns weigh.
- GBP/USD down slightly – 2 Fed officials call for immediate rate hike.
- Weak Chinese PMI weighs on Antipodeans – NZD down -1.7 cents.
Sterling
The Pound started the New Year with a bang against the Euro and Sterling performed pretty well against the majority of its other most-traded currency counterparts.
Data released by the British Retail Consortium (BRC) showed that the 76% of retailers expect sales to improve in 2015 and that 78% intend to hire more staff. Despite the fact that the British economic revival lost a little bit of steam towards the end of the year, consumers are benefitting from the lowest rate of inflation for more than 12 years.
Markit Economics is due to release its latest manufacturing PMI report later this morning. The report is tipped to show a mild improvement from 53.5 to 53.6, which is unlikely to have a massive impact on demand for the UK tender.
Euro
Sterling surged to a seven-year high against the single currency yesterday as jittery traders pulled out of investments denominated in Euros due to fears that quantitative easing from the European Central Bank and snap elections in Greece could drive the single currency lower over the next few months.
The ECB’s governing council is set to meet to discuss monetary policy on January 22nd, a date that many think will herald a new era of stimulus from the central bank. With inflation floundering close to zero and economic growth remaining tepid at best, the consensus among financial markets is that the ECB is likely to roll out a full-scale sovereign asset purchasing programme later this month – something that will drive down borrowing costs in Europe and also lead to lower returns on European investments.
With the ruling Greek coalition’s preferred candidate Stavros Dimas unable to garner enough support to become President earlier this week, a constitutional clause means that the Hellenic nation is to hold a general election on January 25th. Alexis Tsipras and his left-wing SYRIZA bloc are favourites to win the election, raising the possibility that troubling debt restructuring talks could cause Greece to be expelled from the Eurozone.
A combination of fears related to the two potentially massive events on the economic calendar in January caused traders to send the single currency lower by around a cent on New Year’s Day.
Whereas policymakers in Europe look to be on the verge of an unprecedented loosening of monetary policy, officials at the Federal Reserve are inching ever closer to a time when interest rates could finally start to rise. With sturdy inflation, relatively low unemployment and upbeat economic growth, it looks more than likely that the Fed will start hiking rates at some point in the first half of the year. Knowledge of this helped the ‘Greenback’ register its strongest performance on the currency market since 2005 in 2014 and demand for the US Dollar remained strong on the first day of 2015.
GBP/USD slid by around a quarter of a cent in response to a report from Federal Reserve officials Charles Plosser and Michael Dotsey urging the rest of the policy-setting team to start raising interest rates immediately.
In contrast to the booming ‘Greenback’, the Canadian Dollar suffered its worst annual performance since 2008 in 2014, as tanking global oil prices greatly reduced the amount of foreign currency entering the country. A further fall in crude oil prices – ‘black gold’ is now 50% cheaper than it was in June last year – helped the Pound appreciate slightly against the ‘Loonie’ yesterday.
Sterling rallied by around 0.8 cents against the Australian Dollar yesterday as traders reacted to the worst Chinese manufacturing PMI score for 18 months. The weak Chinese figure hurt demand for the risk-sensitive ‘Aussie’ Dollar because it was seen to suggest that Chinese demand for Australian exports could begin to wane as growth in China continues to moderate.
The Pound to New Zealand Dollar exchange rate roared to a 1.7 cent daily gain yesterday as the impact of the soft Chinese PMI reading worked its way through financial markets.
Data Released Today
09:00 EUR Markit Eurozone Manufacturing PMI (DEC F) 50.8
09:30 GBP Mortgage Approvals (NOV) 58.6K
09:30 GBP Markit UK PMI Manufacturing s.a. (DEC) 53.6
14:30 CAD RBC Canadian Manufacturing PMI (DEC) 55.3
15:00 USD ISM Manufacturing (DEC) 57.5