Headlines
UK retail sales dip in January
– Pound weakens slightly.
GBP/EUR hits fresh 7-year high
– Greek debt deal agreed.
US manufacturing up
– Technical patterns inconclusive.
Terrible Xmas retail figures hurt CAD
– AUD & NZD up slightly.
Sterling
The Pound lost out on a little ground against the majors on Friday due to a slightly worse-than-expected UK retail sales report, which came in at -0.3% compared to forecasts of -0.2%. Sterling didn’t take a massive hit following the data release because January sales volumes are often substantially lower than December’s due to the customary retail splurges that occur in the run-up to Christmas. On an annual basis, sales were reported to have accelerated at a sturdy rate of 5.4%, and this also helped to curtail Sterling sell orders.
There is very little economic data of import due for release this week, with nothing notable until Thursday’s revised fourth quarter GDP report. Even that is not expected to have a huge impact on demand for the Pound because it is likely to show the British economy grew by 0.5% in the final three months of the year, in line with previous estimates.
Euro
The Pound drifted to a new seven-year high against the Euro on Friday afternoon as investors remained sceptical over the possibility of a harmonious end to the Greek debt negotiation talks.
However, Greece was able to clinch a deal to extend its current bailout programme for a further four months late in the day and this allowed the single currency to claw back some of its earlier losses. The agreement means that Greece should remain part of the currency bloc for at least the next four months. This boosted confidence in the region, but it came at the political cost of having to submit to another period of austerity, which Syriza had explicitly pledged to avoid in the run-up to last month’s snap elections.
The main positive outcomes from the deal are that Greek banks will receive liquidity assistance from the European Central Bank to help keep the banking system afloat and that Greek Prime Minister Alexis Tsipras now has four months to propose a long term alternative to the current scheme, which thus far has succeeded in keeping the Hellenic nation in the Eurozone but has also proved economically crippling for the majority of the Greek people.
US Dollar
Sterling dipped 70 pips against the US Dollar on Friday morning due to the underwhelming UK retail sales report but GBP/USD trimmed its losses later in the day in reaction to the Greek debt deal announcement, which should ensure a certain level of stability in Britain’s most prominent export market.
The ‘Greenback’ was supported by a robust US manufacturing PMI score of 54.3, up from 53.9 in January. It was the best factory output reading for five months and this helped to boost expectations of a rate hike in the first half of the year. A rare convergence of three technical readings suggests that Sterling could be in for another steep decline against the US Dollar in the near future but shorter term technical patterns, and indeed recent shifts in central bank rhetoric, are indicative of stronger GBP/USD rates.
Canadian Dollar
Sterling pared its retail sales related losses against the Canadian Dollar on Friday afternoon thanks to an even worse set of Canadian consumer spending numbers, which indicated that retail sales plunged -2.0% in December. Prior to the release markets were expectant of a score in the region of -0.4%. The dismal result was the worst score since April 2010 and the figures weighed heavily on demand for the ‘Loonie’ because, unlike the British report, the Canadian dataset referred to the usually prolific Christmas shopping period.
Australian Dollar
The Pound to Australian Dollar exchange rate tumbled 150 pips on Friday as investors reacted to soft UK retail sales numbers but ignored a statement from ratings agency Standard & Poor suggesting that the Australian government cut back on spending.
The muted market reaction to the S&P announcement suggests that investors are fairly confident in the Australian government’s ability to honour its debt repayments. And so they should be; Australia is one of only nine countries in the world rated as top grade investment by all three ratings agencies.
New Zealand Dollar
The New Zealand Dollar strengthened by around half a cent against Sterling on Friday as traders reacted negatively to the slightly worse-than-anticipated January UK retail sales numbers.
Data Released Today
EUR German IFO – Business Climate (FEB)
USD Chicago Fed Nat Activity Index (JAN)
USD Existing Home Sales (MoM) (JAN)