Headlines
- BoE inflation report lifts Pound – Rate hike bets brought forward, slightly.
GBP/EUR close to 7-yr high – German growth impresses.
‘Cable’ hits new monthly high – GBP/USD appears to have turned corner.
Canadian Dollar rises on upbeat domestic data – Sturdy manufacturing report gives GBP/CAD a lift.
Sterling
The Pound remained fairly well bid on Friday as traders continued to digest Bank of England Governor Mark Carney’s latest rhetoric on the health of the UK economy. Despite sensationalist headlines from some mainstream newspapers indicating that interest rates were likely to be slashed – Mr Carney said it was very unlikely that deflation would set in in Britain but mentioned that rates could be cut if it did – the overarching message from the quarterly inflation report was a positive one: cheap oil is likely to provide a positive boost to the domestic economy. This prompted the bank to update its GDP and inflation prospects, which in turn caused markets to bring forward their BoE rate hike bets to suggest that borrowing costs would rise at the beginning of 2016, as opposed to previous projections pointing towards the middle of next year.
The Pound to Euro exchange rate held steady just below its highest level since 2008 on Friday as Greek exit (‘Grexit’) fears deterred investors from buying into the single currency.
Fourth quarter growth data out of the Eurozone printed fairly positively; German GDP more than doubled the market consensus of 0.3%, instead printing at 0.7%, and total economic output in the currency bloc came in at 0.3%, compared to forecasts of 0.2%. The robust German report featured strong domestic spending figures and sanguine export orders – a direct result of the recent weakness in the Euro – and subsequently was seen to bode well for future performance in the 19-nation bloc’s largest economy. It also meant that Britain (0.5%) can no longer claim to be the fastest growing major economy in Europe.
However, the Eurozone’s second biggest economy (France) saw GDP expand by a tepid 0.1% and the bloc’s third largest economy (Italy) witnessed no growth whatsoever. It looks like the same old story of sturdy Germany holding together the rest of the slightly fragile currency bloc.
Sterling registered a small set of daily gains against the US Dollar on Friday to reach a fresh monthly high and mark the first time since June of last year that ‘Cable’ has risen for three consecutive weeks.
The nascent resurgence in GBP/USD comes after a sharp 10-cent depreciation over a period of just six months. Recent indicators suggest that the technical trend has shifted and this could lead to further Sterling gains over the next few weeks. Alternatively, there is a strong possibility that upbeat Federal Reserve rate hike bets could pile more downward pressure on GBP/USD because investors currently expect the US central bank to start tightening monetary policy around nine months ahead of the BoE.
The only key ecostat released in the United States on Friday showed that US consumer confidence cooled from a rather impressive 98.1 to a still optimistic score of 93.6; the result had little lasting impact on demand for ‘Cable’.
Canadian Dollar
The Pound to Canadian Dollar exchange rate stumped to a one-cent daily decline on Friday thanks to surprisingly sturdy manufacturing numbers out of the North American nation.
Statistics Canada announced that manufacturing sales ticked higher by 1.7% during December, smashing forecasts of 0.5%, which gave speculative traders a little bit of impetus to invest in the downtrodden ‘Loonie’. The resilient reading was even more impressive given that five-year low oil prices had sent petroleum and coal products down by -9.3%.
GBP/AUD bounced lower from a highly significant psychological technical barrier last week as traders looked to lock in profit from the highest Sterling to ‘Aussie’ Dollar exchange rate for five-and-a-half-years.
However, the Pound ticked higher on Friday and the expectation among markets is that the Australian Dollar will continue to depreciate over the coming weeks due to warranted concerns that the Reserve Bank of Australia could loosen monetary policy further in the near future. The RBA cut rates by -25 basis points to an all-time record low of 2.25% in January and subsequent commentary from central bank officials has pointed towards further reductions in the benchmark lending rate.
The Pound lost out by around a cent against the New Zealand Dollar over the weekend as a technical rejection took GBP/NZD lower from a near-five-month high. The high-beta ‘Kiwi’ was also supported by a slightly better-than-anticipated 1.7% expansion in fourth quarter retail sales volumes, which improved upon the third quarter’s upwardly revised figure of 1.6%.
Data Released Today
No significant information set for release.