Headlines
- UK trade deficit shrinks – Cheaper oil boosts trade figures.
- Eurozone factory output looks gloomy – ECB preparing €500bn QE scheme.
- NFP prints at 252K – US unemployment falls to 6-yr low of 5.6%.
- Drop in participation and weaker wages weigh – GBP/USD rallies 0.5 cents.
Sterling
A currency crisis in Russia, hyperinflation in Venezuela, reduced shale investment in the US – these are but a few of the consequences of the recent slide in global oil prices. Although British petrol pumps haven’t seen prices fall anywhere near as much as consumers would like, the crude oil plunge has had an impact on the British economy. Data on Friday showed that the UK spent -£700 million less on oil in November than it did in October, which helped bring the yearly trade deficit down from -£9.8 billion to -£8.8 billion.
A separate report showed that manufacturing output rose by 0.7% in November, beating forecasts of 0.3% and lending the Pound a little bit of support.
The Euro came under pressure on Friday morning when German industrial production printed at -0.5% and French output came in even more distressingly at -2.6%. The latest stream of Eurozone industrial data speaks to the inconvenient truth that factories in Europe are performing around 10% worse than they were in the run-up to the financial crisis of 2008. GBP/EUR rallied by around half a cent in reaction to the poor Eurozone industrial data and the slightly better-than-anticipated UK trade balance report.
However, demand for the single currency improved later on in the day thanks to a report suggesting that the European Central Bank is preparing to unleash a €500 billion bond-buying programme later this month. The report bolstered the Euro because €500 billion is seen as an insufficient amount to help lift the currency bloc out of the disinflationary spiral that it appears to be in – not that this is a good thing, just that investors were expecting the ECB to launch a larger quantitative easing scheme, which would be liable to have a larger depreciative impact on the single currency.
Sterling strengthened by over half a cent against the US Dollar on Friday even though the US unemployment rate tumbled to a new six-year low of 5.6% and the US non-farm payroll report printed above expectations at 252,000.
Investors were initially cheered by the strong headline figures but on closer inspection the report was a little less optimistic. A drop in the participation rate from 62.9% to 62.7% suggests that the fall in joblessness may well have been a hollow one and a disappointing deceleration in wage growth from 1.9% to 1.7% shows that the Federal Reserve still has scope to wait on the sidelines for a little while longer. The downbeat earnings and participation figures gave the Pound the impetus it needed to mount a minor recovery following a week of steady losses.
A disappointing Canadian jobs report helped the Pound rally by around 1.4 cents on Friday. The headline jobless rate remained at 6.6% but -4,300 jobs were lost, confounding expectations of 15,000 jobs being created. The underwhelming figures helped bring the ‘Loonie’ down to a five-year low against the US Dollar but only served to help lift the Pound to a two-day high following a week of monthly lows.
Sterling sunk by over a cent against the Australian Dollar on Friday as the underwhelming US average earnings figure helped assuage fears that the Federal Reserve could start raising rates in the immediate future. The risk-boosting report helped steer the ‘Aussie’ to a fresh monthly high against the Pound.
The Pound to New Zealand Dollar exchange rate rallied by around half a cent on Friday as decent UK trade figures and a better-than-expected manufacturing production report bolstered the appeal of Sterling.