Headlines
Pound enters week at high levels
– UK manufacturing on tap.
GBP/EUR hits fresh 7-yr high
– ECB bond-buying weighs on single currency.
US GDP revised down
– From 2.6% to 2.2%.
RBA rate decision this week
– 25bps cut expected.
Sterling
Without any further cause for optimism, the Pound remained sturdy against the majors on Friday. Later this morning manufacturing data is expected to show that factory output improved slightly in February, inching up from 53.0 to 53.4. The potentially upbeat manufacturing PMI report, combined with an anticipated 61,000 rise in mortgage approvals, is liable to keep the Pound propped-up at the start of this week’s session.
However, with the political uncertainty of the closest general election of the modern era just around the corner, there are some analysts who think that Sterling will cede some ground against its currency rivals over the coming weeks to reflect the possibility of an in/out EU referendum if David Cameron’s Conservative party win a second spell at 10 Downing Street.
Euro
The Pound to Euro exchange rate surged to yet another new seven-year high on Friday as investors continued to shun investments denominated in Euros in anticipation of the European Central Bank’s latest stimulus scheme, which is due to commence this week.
The single currency was initially buoyed by news that the German court had voted to approve Greece’s latest aid deal but the laughably low yields offered on most Eurozone government debt papers caused the common currency to weaken further during the afternoon. Euro bond yields are expected to tumble further over the coming months as ECB bond purchases artificially drive interest rates lower in the currency bloc.
US Dollar
The Pound ticked slightly higher against the US Dollar on Friday but remained slightly lower than the eight-week high it hit earlier on in the week.
Data released during the afternoon showed that the American economy expanded at an annual rate of 2.2% in the fourth quarter of last year, which marked a slight downward revision on the previous estimate of 2.6% and a large step down from the third quarter’s bumper 5.0% rise. A widening trade deficit and a slowdown in stock accumulation were the main reasons for the deceleration in the final three months of last year, but prospects for 2015 still look rosy and a mid-year rate hike from the Federal Reserve still looks probable.
More than anything, the Q4 US GDP figure had a symbolic meaning: that the British economy (2.7%) outpaced the US (2.2%) throughout the course of 2014.
Canadian Dollar
The Canadian Dollar performed fairly well at the start of Friday’s session due to an encouraging uptick in crude oil prices, however, Sterling broke through a technical trading barrier later on in the day to mark a slender daily gain.
A sturdy 3% rise in the value of Canada’s most lucrative export had initially stoked demand for the ‘Loonie’ but, even after registering its first monthly gain since last June, the price of crude remains at a depressed $49 per barrel, which does not bode well for Canadian oil exporters.
Australian Dollar
The Pound to Australian Dollar exchange rate fluctuated slightly on Friday but most movement between the two currencies was a result of technical trading patterns rather than a concerted effort by traders to send Sterling higher or lower against the ‘Aussie’.
Later this week the Reserve Bank of Australia is set to announce its benchmark interest rate for March. Despite comments from RBA Governor Glenn Stevens to the contrary, the majority of market participants expect the central bank to slash rates by a further 25 basis points to 2.00%; this would likely lead to a depreciation in the value of the Antipodean currency.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate plunged lower for the third day in a row on Friday as market sentiment favoured the ‘Kiwi’ currency. It seems that technical factors were at play because there were no significant economic reports released on Friday related to either currency’s economy.
Data Released Today
GBP Mortgage Approvals (JAN)
GBP Markit UK PMI Manufacturing s.a. (FEB)
EUR Euro-Zone Unemployment Rate (JAN)
CAD RBC Canadian Manufacturing PMI (FEB)
USD ISM Manufacturing (FEB)