Headlines
- UK house price growth slows – Retail sales cool in January.
- German inflation sinks to -0.3% – Euro rises on profit-taking stances.
- US jobless claims at 15-yr low – American Q4 GDP on tap.
- GBP/AUD hits 5-yr high – RBA rate cut fears impact ‘Aussie’.
Sterling
The Pound gained ground against the commodity currencies but lost out against the Euro and the US Dollar yesterday. British data showed that house price growth slowed to a 14-month low of 6.8% in January, reflecting a 20% dip in mortgage approvals since the start of 2014 when the Bank of England announced measures to limit risky lending. However, with unemployment falling, real wages finally on the up and new housebuilding still 34% lower than it was before the financial crisis, there is definitely scope for prices to rise further in the future.
A separate report indicated that retail sales cooled to a rate of +39 in January following a 27-year high rate of +61 in December. The deceleration did little to concern markets because the bumper Christmas shopping period is usually followed by a sharp cut back in the New Year.
Euro
Disinflation spread to Germany in January, it was reported yesterday. The currency bloc’s largest economy saw its consumer price index fall to a five-and-a-half-year low of -0.3%, which undershot investors’ expectations of -0.2%.
However, because the drop was largely influenced by the recent downtick in global oil prices, and because the European Central Bank has effectively just depleted its toolbox of monetary easing measures, the single currency did not suffer any losses when the report was published. Rather, the Euro actually strengthened by around a cent, as traders opted to lock-in profit from the near seven-year high GBP/EUR exchange rate.
Over in Greece, new PM Alexis Tsipras held amiable talks with European Parliament President Martin Schulz. Markets were cheered by Schulz’ comments following the meeting because the EU official seemed confident that the Greek government would not be pursuing a hazardous path out of the Eurozone.
US Dollar
Sterling tumbled by around a cent against the US Dollar yesterday afternoon as sturdy US data bolstered the appeal of the ‘Greenback’. A report showed that US initial jobless claims plunged 43,000 last week to a new 15-year low of 265,000, which appeared to corroborate Federal Reserve Chairwoman Janet Yellen’s recent comments on the health of the American labour market.
The US Dollar also benefitted from a 6.1% annual rise in pending home purchases, which was the highest yearly increase since December 2013. On reflection, the day’s ecostats did little to significantly increase the possibility of an early rise in rates from the Fed, but they did keep rate hike bets ticking along, and this supported the US Dollar.
Later this afternoon fourth quarter US GDP is anticipated to print at 3.0%, down from 5.0% in Q3. The expected slowdown could have a negative impact on the ‘Greenback’ but the Fed’s upbeat assessment of the US economy should prevent the domestic currency from suffering any substantial losses.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by 60 pips yesterday to strike another fresh five-and-a-half-year high. This marked seven days out of ten that Sterling had struck a new multi-year high against the ‘Loonie’. Sliding copper prices added to the Canadian Dollar’s woes, as did fears that this afternoon’s GDP report could show that economic growth stalled at the end of 2014. On a monthly basis Canadian GDP is forecast to come in at 0.0%, whilst annual growth is tipped to slow from 2.3% to 2.1%.
The Australian Dollar continued to flounder yesterday as investors fretted that the Reserve Bank of Australia could slash interest rates when policymakers meet next week. It seems that the dovish rhetoric in the Reserve Bank of New Zealand’s latest statement was interpreted as a telling sign that recent moves by central banks to loosen monetary policy could catch on in the South Pacific. The Pound to Australian Dollar exchange rate is currently trading at a five-year high, its highest level since September 2009.
Yesterday Sterling rallied to its highest level against the New Zealand Dollar since the start of October. The ‘Kiwi’ Dollar struggled to find buyers following the dovish RBNZ policy statement on Wednesday evening, which saw Governor Graeme Wheeler bemoan the high exchange rate of the New Zealand Dollar and suggest that rates could be cut later on in the year.
Data Released Today
09:30 GBP Mortgage Approvals (DEC) 59.0K
10:00 EUR Euro-Zone Unemployment Rate (DEC) 11.5%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (JAN) -0.5%
13:30 CAD Gross Domestic Product (MoM) (NOV) 0.0%
13:30 CAD Gross Domestic Product (YoY) (NOV) 2.1%
13:30 USD Gross Domestic Product (Annualized) (4Q A) 3.0%