Headlines
- Pound suffers ‘Blue Monday’ – Sterling down vs. majors.
- Hollande speaks of ECB QE – Declares it will be announced on Thursday.
- GBP/USD down a cent – Safe haven flows benefit Dollar.
- Chinese GDP impresses – Sends AUD & NZD higher.
Sterling
Thanks to a 2005 marketing campaign for Sky Travel, the third Monday in January is now known as ‘Blue Monday’. Using a bogus formula that makes about as much sense as Louis van Gaal playing Angel Di Maria up front and Wayne Rooney in midfield, the ‘Blue Monday’ formula purports to show that Britons were more depressed yesterday than on any other day of the year.
Regardless of whether taking zero hours to pack your bag for a trip to the loo really does equate to infinite enjoyment – as the flawed theory would suggest – the Pound really did have a ‘Blue Monday’ yesterday. Sterling weakened against nearly all of its major currency peers despite there being no clear motive for any downward moves.
The Euro recovered from a seven-year low against the Pound yesterday to register a near-one-cent daily gain.
As testament to how high market expectations are for an ECB QE scheme, the single currency didn’t even budge when French President Francois Hollande took the surprising decision to declare that the European Central Bank will launch a quantitative easing scheme this Thursday. In the past an unceremonious announcement of this kind would have been liable to knock the Euro off course. But in this climate, where it seems that analysts are almost certain that the ECB will announce a full-scale bond-buying scheme, the market impact was limited. This is because many traders doubt that the bank’s proposed measures will be robust enough to lift the currency away from its current disinflationary climate. The median market forecast for Thursday’s QE target is around €600 billion, but analysts suspect that as much as €1 trillion could be needed to have a significant effect.
With US markets closed for Martin Luther King Jr. Day trading volumes were fairly low yesterday, which meant that each currency exchange that did take place carried a higher proportional weight than it usually does.
The Pound declined by around a cent against the US Dollar as unsettled traders around the world continued to put their faith in the safe haven ‘Greenback’ in the aftermath of the Swiss National Bank’s decision to stop pegging the Swiss Franc to the Euro. By dropping the CHF/EUR peg without warning, the SNB has opened the door to further surprises. It has made investors feel uncertain. And when investors feel uncertain they invariably put their money into the US Dollar, the world’s premier safe haven currency.
With little discernible stimuli, the Canadian Dollar managed to steal a one-cent gain from Sterling yesterday. Indeed, crude oil prices, which are generally seen to have a pretty steady relationship with the Canadian Dollar because of Canada’s reliance on oil exports, fell yesterday due to an increase in Iraqi production. This would usually be expected to translate into weaker demand for the ‘Loonie’, but on this occasion it did not.
It could be because some investors are hoping for a hawkish statement from the Bank of Canada on Wednesday. But with the nation’s most profitable export down in value -55% and the domestic currency down -4% over the past six months, these hopes could easily be dashed later in the week.
On a day devoid of major data releases, it was only the Australian Dollar that missed out on rallying against the Pound yesterday. GBP/AUD remained fairly flat throughout the day, which is exactly what you would have expected under these circumstances.
However, demand for the ‘Aussie’ soared overnight when China announced that its economy grew by 7.3% in 2014, beating forecasts of 7.2%. The risk-boosting print sent GBP/AUD lower by around a cent in a knee-jerk reaction.
The Pound to New Zealand Dollar exchange rate tumbled by over half a cent earlier this morning when Chinese GDP data came in better-than-expected, boding well for cross-border trade between the two nations. The uptick in global risk sentiment was especially relevant to the New Zealand Dollar because China is the Antipodean nation’s largest export destination.
Data Released Today
10:00 EUR German ZEW Survey (Economic Sentiment) (JAN) 40
15:00 USD NAHB Housing Market Index (JAN) 58
21:45 NZD Consumer Prices Index (YoY) (4Q) 0.9%