Headlines
- UK manufacturing PMI report on tap – Growth of 52.6 expected.
- Eurozone unemployment dips to 11.4% – Inflation plunges to -0.6%.
- US GDP slows in Q4 – From 5% to 2.6%.
- GBP/CAD hits 5.5-yr high – Canadian GDP contracts -0.2% in Nov.
Sterling
Data on Friday showed that mortgage approvals were down 17% last December when compared to the same period of the previous year. The below-average total of 60,275 new home loans suggests that the British housing market could continue to cool over the next few months, which would give the Bank of England more leeway to leave interest rates at rock-bottom for longer. However, the data only had a limited impact on demand for the Pound.
Later this morning Markit Economics is set to announce its latest report on the health of the British manufacturing industry; the PMI report is anticipated to show that output accelerated minimally from 52.5 to 52.6. Although domestic demand remains sturdy, protracted weakness in the Eurozone economy has made it difficult for British manufacturers to attract buyers from within the currency bloc.
It was a mixed bag of European data on Friday; Eurozone unemployment sunk to a two-year low of 11.4% but inflation, including the core figure which strips out food and energy prices, plunged to new lows.
Despite shocking jobless rates of 25.8% in Greece and 23.7% in Span, the headline unemployment rate of the 19-nation bloc took a surprising tumble in December. Enviable unemployment ratios of just 4.8% in Germany and 4.9% in Austria helped bring the score down by one-tenth of a percentage point to its lowest level since August 2012.
However, demand for the single currency remained tepid because a separate report showed that inflation in the bloc sunk to a new five-year low of -0.6% and, perhaps more worryingly, that the core CPI figure also dipped from 0.7% to a new all-time low of 0.5%.
The data confirms that the European Central Bank was right to inject further monetary stimulus into the currency area but also shows that it may be a very long time before price pressures start to rise again in Europe. Generally, changes in monetary policy do not have a significant impact on an economy for at least 18 months.
GBP/EUR rose by around half a cent on the day.
The Pound to US Dollar exchange rate remained fairly flat on Friday, despite a report showing that US economic growth cooled considerably during the fourth quarter of last year.
Following a humongous annual expansion of 5.0% in Q3, the US economy moderated to a more sustainable rate of 2.6% in Q4. The slightly worse-than-anticipated report means that, with a growth rate of 2.7%, Britain was the fastest-growing major economy last year. But more importantly, it means that there could be less pressure on the Federal Reserve to start hiking rates.
US GDP is tipped to accelerate slightly during the first three months of this year because reduced oil prices have boosted the spending power of US consumers. But if the US Dollar’s renewed strength in the currency markets continues to encourage imports, hurt exports and drive the budget deficit wider, there is potential for economic activity to slow, which could impact Fed rate hike bets.
Sterling registered a 1.5-cent daily gain against the ‘Loonie’ on Friday as markets reacted to a dismal Canadian GDP report, which showed that economic activity contracted -0.2% in November last year. A -1.9% shrinkage in manufacturing output – the worst reading since January 2009 – weighed heavily over the Canadian economy and brought the annualised GDP figure down from 2.3% to 2.1%. And with global commodity prices sitting at multi-year lows there is a good possibility that the North American nation could witness further contractions over the next few months.
GBP/CAD touched a fresh five-and-a-half-year low when the data hit the newswires.
The Pound drifted to a fresh five-year high against the Australian Dollar on Friday as traders continued to deliberate over the possibility that the Reserve Bank of Australia could slash interest rates at its next policy meeting. RBA officials are due to meet on Tuesday to discuss monetary policy and, with other central banks shifting towards more accommodative stances, speculation is rife that they could decide to cut rates in Australia.
The ‘Aussie’ Dollar would be liable to depreciate massively if RBA Governor Glenn Stevens does in fact announce a reduction in rates on Tuesday.
The Pound to New Zealand Dollar exchange rate rallied to a three-month high on Friday due to concerns that the nation’s largest trading partner, China, could be on the verge of a significant slowdown. It was reported that, for the first time in over two years, Chinese manufacturing output contracted in January. The disappointing 49.8 PMI score stoked fears of a collapse in demand for New Zealand exports in China and this caused the ‘Kiwi’ to weaken against the Pound.
Data Released Today
09:30 GBP Markit UK PMI Manufacturing s.a. (JAN) 52.6
13:30 USD Personal Income (DEC) 0.2%
13:30 USD Personal Consumption Expenditure Core (YoY) (DEC) 1.4%
15:00 USD ISM Manufacturing (JAN) 55