Headlines
- UK retail sales beat forecasts – 12-yr high 2.3% jump in Q4.
- POUND AT NEW 7-YR HIGH VS. EURO – Syriza triumphant in Greek election, unsettles markets.
- GBP/USD strikes 18-month low – Dips below psychological support of 1.50.
- Sterling hits 5.5-yr high vs. ‘Loonie’ – Canadian inflation slows to 1.5%.
Sterling
The Pound performed fairly well on Friday thanks to an unexpectedly strong UK retail sales report. The Office for National Statistics (ONS) announced that private consumption increased by 0.4% in December, which was especially encouraging seeing as the heavy discounts during the ‘Black Friday’ weekend had boosted November’s score considerably. Most traders had expected December’s retail sales report to show a contraction of around -0.7%.
The better-than-anticipated figure reflects the recent downtick in consumer prices which, combined with slightly better rises in earnings, has allowed consumers to spend more over the past few months. During the fourth quarter retail spending jumped 2.3%, the fastest rate for over a decade.
As markets continued to react to the European Central Bank’s plan to start purchasing €60 billion worth of Eurozone government bonds per month from now until September 2016, support for the Euro exchange rate continued to diminish on Friday. The Pound, which also benefitted from the upbeat British retail sales report, strengthened by over 1.5 cents against the single currency.
Last night GBP/EUR opened around a cent higher, reaching another fresh seven-year high, as markets adjusted following Syriza’s triumph at the Greek general election on Sunday. The far-left anti-austerity party received around half of the votes, prompting outgoing PM Antonis Samaras to concede defeat. Syriza talisman Alexis Tsipras said the vote marked an end to the ‘vicious cycle of austerity’ and hailed his party’s victory as an ‘indisputable mandate …[to leave] behind five years of humiliation and pain’.
Although his rousing victory speech was met with rapturous applause from hundreds of Greek supporters, Tsipras’ words struck a slightly less optimistic note in the ears of EU, IMF and EC officials. Many analysts claim that Tsipras’ intention to renegotiate Greece’s bailout package will end in the Hellenic nation being expelled from the currency bloc, which explains why the Euro depreciated across the board in reaction to the news.
The Pound to US Dollar exchange rate plunged to a fresh 18-month low on Friday, but Sterling managed to claw its way back above an extremely significant psychological support level by the end of the day.
US data came in mildly disappointingly on Friday: the Chicago Fed index tumbled form 0.92 to 0.00, the Markit manufacturing PMI cooled from 53.9 to 53.7 and the leading indicators index decelerated form 0.6% to 0.5%. However, the medium-importance ecostats were not seen to have had a noticeable impact on GBP/USD trading patterns.
With Sterling having dipped below 1.50 on Friday, there is every possibility that the UK currency could suffer further defeats over the coming days and weeks as safe haven demand benefits the ‘Greenback’.
Canadian Dollar
The Pound is currently around a cent stronger against the Canadian Dollar than it was at the start of Friday’s session. There are three motivating factors behind the latest rise in GBP/CAD, which took the Sterling to Canadian Dollar exchange rate to a fresh five-and-a-half-year high. 1) The sturdy UK retail sales report bolstered demand for the Pound. 2) A report released on Friday afternoon showed that Canadian consumer prices decelerated from 2.0% to 1.5% during December. 3) Syriza’s victory in Greece has put most traders into risk-off mode, which subsequently had a negative impact on the risk-sensitive ‘Loonie’.
Sterling struck a fresh three-week high against the Australian Dollar on Friday as a large contingent of traders continued to fret that the Reserve Bank of Australia could opt to lower interest rates over the next few months. Investors were alerted to the threat of a RBA cut last week when the Bank of Canada announced its surprise rate revision. The ECB’s decision to finally launch an expansive quantitative easing scheme has also caused markets to shift their central bank policy expectations.
GBP/AUD is around three cents stronger than it was at the start of Friday’s session.
The New Zealand Dollar tumbled by around a cent when markets reopened for business this week in response to Alexis Tsipras’ victory in Greece. Syriza’s triumph is viewed as damaging for risk sentiment, and therefore for the ‘Kiwi’ Dollar, because some economists are worried that the newly crowned party’s radical desire to renegotiate Greece’s debt pile could lead to the Hellenic nation’s being kicked out of the 19-nation bloc.
Data Released Today
10:00 EUR Euro-Zone Retail Sales (YoY) (NOV) 0.2%
12:00 GBP Bank of England Rate Decision (JAN 8) 0.50%
13:30 USD Initial Jobless Claims (JAN 3) 290K