Headlines
UK manufacturing impresses
– Election concerns weigh on Sterling.
GBP/EUR down from 7-yr high
– Eurozone inflation and unemployment beat forecasts.
Pound down vs. US Dollar
– US manufacturing slows.
RBA rate announcement boosts ‘Aussie’
– Benchmark rate held at 225bps.
Sterling
Demand for the Pound dipped slightly yesterday as investors turned their attention to the upcoming general elections in May. British manufacturing output impressed at a seven-year high of 54.1 in February, up from 53.1 a month previously, but the data was not enough to shine on Sterling as election concerns clouded investors’ outlook.
Apart from the fact that the nail-bitingly close general election could cause a period of political instability if no clear victor emerges from the ballot, the other concern is that David Cameron has promised an in/out EU referendum if his Conservative party win a second term in office, which could potentially dissuade businesses from investing in the UK.
Euro
Upbeat data out of the Eurozone gave the single currency a little bit of respite against the Pound yesterday as GBP/EUR drifted lower from its recent seven-year high.
Inflation data showed that consumer prices in the currency bloc rose from -0.6% to -0.3% in February, which was tentatively taken as an indication that price pressures could already have bottomed out in Europe. Eurozone unemployment also surprised traders, coming in at a near-three-year low of 11.2% down from 11.4% previously due to a sturdy 1.1% rise in prices in the service sector and a 0.5% uptick in the value of food, alcohol and tobacco.
The Euro appreciated by around 70 pips in reaction to the encouraging figures as traders speculated over the possibility that economic conditions in the 19-nation bloc could have turned a corner and begun to improve.
US Dollar
The Pound also registered a 70 pip loss against the US Dollar yesterday as markets took advantage of the recent eight-week high GBP/USD rate and cashed in on profitable trades.
Surprisingly, demand for the ‘Greenback’ accelerated during the afternoon following a report showing that US manufacturing activity slowed to its lowest level for over a year. The headline ISM index tumbled from 53.5 to 52.9 as a result of a sharp deceleration in production and new orders. However, analysts cited the bad weather in February as reason to be optimistic that factory output could rebound strongly in March and this prevented any negativity seeping through and impacting demand for the US Dollar.
Canadian Dollar
The Pound to Canadian Dollar exchange rate remained fairly flat yesterday as investors weighed up the possibility of further monetary easing from the Bank of Canada later this week. The BoC cut interest rates from 1.00% to 0.75% at the start of the year and analysts had anticipated a further reduction in March. However, bank Governor Stephen Poloz told reporters last week that rates were liable to remain static for a considerable period of time to allow policymakers to evaluate the impact of falling oil prices. So although Poloz attempted to assuage rate cut fears, the ‘Loonie’ is unlikely to rally with any strong prejudice until after Wednesday’s BoC policy announcement.
Australian Dollar
GBP/AUD rallied then returned to opening levels during the London session as traders awaited the Reserve Bank of Australia’s latest benchmark interest rate announcement. But Sterling declined by over a cent when the RBA decision was released because policymakers opted against cutting rates at this juncture, although they did leave the door open to further easing measures in the future.
New Zealand Dollar
Sterling struggled to make any further gains against the New Zealand Dollar yesterday due to the People’s Bank of China’s decision over the weekend to cut interest rates, which buoyed economic sentiment in the region.
Data Released Today
GBP Markit/CIPS UK Construction PMI (FEB)
CAD Gross Domestic Product (YoY) (DEC)