Headlines
UK deficit dips in Feb
– Surge of self-assessment tax receipts.
Greek concerns weigh over single currency
– Pound flat vs. Euro.
GBP/USD rallies 200 pips
– Fed hike bets dampened by comments.
Canadian retail sales decline
– Sterling strengthens vs. ‘Loonie’.
Sterling
The Pound received a little bit of fillip on Friday morning when UK public sector borrowing figures were released to show that the government borrowed -34% less in February of this year than February of last year. A huge rise in self-assessment tax receipts from £1.8 billion to £4.2 billion helped bring the annual deficit down from -£8.9 billion to -£6.2 billion, reflecting the recent surge in the number of people becoming self-employed.
Although the falling deficit was seen as a positive indicator for the Pound it only had a minor impact on the Sterling exchange rate because January and February are the months when self-employed people pay the majority of their taxes, so, it is a given that the UK current account balance should improve through these two months. If the deficit continues to drop over the next few months then it is entirely possible that the Pound could start to strengthen in reaction.
Euro
The Pound to Euro exchange rate remained relatively flat on Friday as investors reacted to the latest leg of the Greek-German debt negotiation saga.
After a meeting of Eurozone finance ministers, which went on deep into the early hours of the morning, Greek Prime Minister Alexis Tsipras announced that Greece would have control over the measures introduced in exchange for financial aid. Tsipras ruled out the possibility of the Greek government running out of cash over the next few months and stated that future economic reforms would not include recessionary measures.
The Greek PM struck a positive note in his speech but the reality is that it will be very difficult, especially given the current level of public resentment towards Greece in Germany, for Tsipras to persuade German officials to grant Greece access to much-needed funds without compromising on Syriza’s election pledge to reverse austerity and increase public spending.
So, overall, any progress that was made can only be considered minimal.
US Dollar
The Pound to US Dollar exchange rate rallied by around 200 pips on Friday afternoon in reaction to comments from Federal Reserve policymaker Dennis Lockhart suggesting that ‘liftoff’ on interest rates could be delayed until September.
The Atlanta Fed President noted that rates could be raised at either of June’s, July’s or September’s central bank meetings as long as domestic data continues to impress. The recent shift in Fed rhetoric makes upcoming US economic data more important than ever, and for this reason markets will be paying close attention to Tuesday’s US CPI inflation report. If the consumer price index remains at -0.1% as expected then the ‘Greenback’ could struggle – even more so if the data comes in below consensus – but a better-than-anticipated score could give the US Dollar a massive boost.
Canadian Dollar
Sterling strengthened by around 40 pips against the Canadian Dollar on Friday as core Canadian inflation cooled from 2.2% to 2.1% and retail sales disappointed at -1.7%, compared to forecasts of -0.8%. The headline inflation rate remained at 1.0% thanks to a rise in domestic prices, which offset a -21.8% slide in fuel prices. But the fate of the ‘Loonie’ was sealed by the ugly retail report detailing that sales volumes declined by over twice as much as anticipated in January.
Australian Dollar
Despite comments from Reserve Bank of Australia Governor Glenn Stevens indicating that policymakers have discussed cutting interest rates further, the Australian Dollar increased in value by around half a cent against the Pound on Friday. It seems that the risk-correlated currency was able to garner support on the back of the comments from Federal Reserve policymaker Dennis Lockhart suggesting that rates may remain static until September.
New Zealand Dollar
The Pound weakened by around a cent against the New Zealand Dollar on Friday as investors’ appetite for risk increased following the Fed Lockhart comments.
Data Released Today
11:00 GBP CBI Trends Total Orders (MAR) Medium
14:00 USD Existing Home Sales (MoM) (FEB) Medium