Headlines
UK retail sales impress
– 5.7% annual jump as Britons’ spending power increases.
GBP/EUR up 100 pips
– Sterling breaks downward trend.
‘Cable’ down on Fed hiking remarks
– Fed’s Bullard says time to normalise policy.
Saudi military action in Yemen impacts oil
– Crude rallies 6% on conflict fears.
Sterling
The Pound performed fairly well against most of the majors yesterday thanks to a better-than-anticipated set of UK retail sales numbers. Beating estimates of 0.4% month-on-month, and 4.7% year-on-year, the Office for National Statistics (ONS) reported that sales volumes increased 0.7% last month and 5.7% over the past year. It is believed that the recent plunge in oil prices, which has significantly reduced the level of inflation both globally and in the UK, helped to boost consumer spending trends by bolstering Britons’ purchasing power. The largest increase in sales volumes was witnessed in non-food items, such as furniture and other household goods.
The Pound rallied by around a cent against the Euro yesterday, breaking a run of five days of gains for the single currency. The upbeat UK retail sales report appeared to boost sentiment towards Sterling as hopes of robust economic growth in Britain outshone fears of an – in all seriousness – unlikely rate cut from the Bank of England.
Across the channel in the Eurozone, European Central Bank President Mario Draghi beat the QE drum by claiming that the bank’s bond-buying programme was helping to fund the region’s large number of small to medium sized enterprises (SMEs) and that it had brought down the Euro exchange rate, which subsequently could help boost competitiveness in the currency bloc.
However, German finance minister Wolfgang Schauble argued that the ECB’s QE programme was removing incentive for some indebted countries to introduce much needed economic reforms. He was quick to point out that he was not criticising the scheme, due to the ECB’s mandate of keeping inflation close to 2.0%, merely commenting on its undesirable side effects.
Sterling initially made up for some lost ground against the US Dollar yesterday in reaction to the sturdy British retail sales report. However, demand for the ‘Greenback’ increased during the New York session in response to remarks from Federal Reserve policymaker James Bullard, who said that there were ‘substantial risks’ in keeping interest rates low for too long. GBP/USD plunged lower by around -80 pips in reaction to Bullard’s remark that ‘now may be a good time to begin normalising US monetary policy’.
Later today ‘Cable’ could come under more selling pressure if US fourth quarter GDP is revised up from 2.2% to 2.4% as predicted by market forecasters.
The Canadian Dollar rallied by around 120 pips against the Pound yesterday thanks to a 6% jump in the price of crude oil. Demand for ‘black gold’ increased after it was reported that Saudi Arabia has launched a military assault on Yemeni rebels, thus fuelling fears of further conflict in the Middle East. The ‘Loonie’ also responded well to Bank of Canada Governor Stephen Poloz’ assertion that the January rate cut has bought the BOC time to assess the economy’s ability to cope with lower oil prices.
Australian Dollar
The Pound to Australian Dollar exchange rate remained relatively flat yesterday as decent British data failed to give the UK currency a lift against the high-beta ‘Aussie’.
New Zealand Dollar
Sterling remained a cent-and-a-half above the two-month low that it struck against the New Zealand Dollar earlier in the week yesterday. However, the Pound struggled, and ultimately failed, to make any significant gains against the ‘Kiwi’.
Data Released Today
12:30 USD Gross Domestic Product (Annualized) (4Q T)
19:45 USD Fed’s Yellen Speaks on Monetary Policy in San Francisco