Headlines
UK construction sinks in January
– British housebuilding down -5%.
GBP/EUR close to 7-yr high
– Talk of ‘Grexident’ spooks markets.
‘Cable’ hits 4.5-yr low
– Fed commentary due this week.
Canadian unemployment rises to 6.8%
– ‘Loonie’ unaffected due to sturdy full-time job figs.
Sterling
An unwelcome dip in housebuilding caused UK construction output to contract in January, according to the Office for National Statistics’ (ONS) latest report. Confounding expectations of a 1.2% expansion, the construction sector saw a decline of -2.6% at the start of the year. This was the worst score since November 2013 and reflected a worrying -5.0% drop in new housebuilding; commercial building work also plummeted -6.6%.
Although the construction sector only accounts for around 8% of the British economy, the disappointing result impacted the Pound because construction work creates jobs and Britain is in dire need of new residential properties to help stabilise the overheating housing market.
Euro
The Pound traded just shy of its highest level for seven years against the Euro on Friday as ‘Grexident’ fears weighed on European sentiment.
The phrase ‘Grexident’, used by German finance minister Wolfgang Schauble last week, refers to the possibility that a lack of progress in negotiations between Greece and its creditors could see the Hellenic nation exit the Eurozone by accident. The remark appeared to be a thinly-veiled threat that European policymakers’ patience could run out if the Greek government continues to defy calls to implement further Eurogroup-approved austerity measures.
However, nerves were calmed slightly during the afternoon when European Commission President Jean-Claude Juncker announced that, following a meeting with Greek Prime Minister Alexis Tsipras, he was confident that Europe will not resort to severing ties with Greece. Juncker struck a positive tone, stating that he was ‘totally excluding a failure’ of the European project.
US Dollar
The Pound to US Dollar exchange rate succumbed to a fresh four-and-a-half-year low on Friday as traders maintained a bearish view of the pair following GBP/USD’s capitulation below former support at 1.50.
‘Cable’ tumbled by another 150 pips to reach its lowest level since June 2010 and it is starting to look like the Pound could remain at depressed levels against the Dollar for the foreseeable future as Federal Reserve rate hike bets continue to point towards a tightening of policy in June.
However, if the US central bank fails to instil markets with a sense of urgency in this week’s monetary policy statement, it could take the wind out of the ‘Greenback’s sails and therefore open the door to a potential rebound in Sterling.
Canadian Dollar
Despite the national unemployment rate of Canada rising from 6.6% to 6.8% on Friday, the Canadian Dollar managed to avoid any significant losses against the Pound. Analysts had penciled a slower rise in joblessness to 6.7%, but because the domestic economy actually gained 34,000 full-time jobs and lost 34,900 part-time jobs the report was not seen as particularly negative.
Australian Dollar
Sterling traded with little directional bias against the Australian Dollar on Friday as the prospect of tighter monetary policy in the US weighed on risk sentiment and the worse-than-anticipated UK construction figures dampened demand for the Pound.
New Zealand Dollar
As is so often the case, the New Zealand Dollar followed a similar trajectory to its Antipodean cousin – the Australian Dollar – on Friday. Sterling initially rallied against the ‘Kiwi’ on market-wide risk aversion flows but the Pound was forced to surrender its gains when the underwhelming British construction report was released.
Data Released Today
USD Industrial Production (FEB)