Headlines
UK Q4 GDP revised higher
– QoQ 0.6%, YoY 2.8%.
Pound rises on sturdy growth
– But deficit hits all-time high.
GBP/EUR up 120 pips
– Lack of Greek progress weighs.
‘Loonie’ flat following -0.1% GDP print
– Sterling up 50 pips vs. US Dollar.
Sterling
The Pound rallied across the board yesterday thanks to an unexpected positive revision to last year’s fourth quarter GDP print, which confirmed that Britain was the fastest growing major economy in 2014.
The Office for National Statistics (ONS) announced that the UK economy grew by 0.6% in the final three months of last year, up from the 0.5% that was previously estimated. And this helped drive the annualised Q4 GDP score higher from 2.6% to an eight-year high of 2.8%. The news helped assuage fears that Britain could be headed towards an unhelpful climate of deflation and this bolstered demand for Sterling as rate cut bets deteriorated.
Chancellor George Osborne heralded a ‘hat trick’ of good news from the ONS (upgraded GDP, upbeat consumer confidence and a 0.2% rise in living standards) but failed to mention that the British current account deficit is now at an all-time record high of 5.5% of gross domestic product.
Euro
The Pound strengthened by around 120 pips against the Euro yesterday thanks to the surprise upgrade of fourth quarter UK GDP.
The single currency was also hurt by negative sentiment deriving from the situation in Greece, specifically to the fact that Greek Prime Minister Alexis Tsipras failed to agree a new package of austerity measures with the nation’s creditors at the start of the week.
European data actually printed fairly positively, with German unemployment sliding to a new all-time low of 6.4% and Eurozone inflation ticking higher from -0.3% to -0.1%, but the single currency failed to benefit from either result.
US Dollar
Sterling rose by around half a cent against the US Dollar yesterday, reversing Monday’s 50 pip losses, as investors reacted to a surprisingly poor American manufacturing report.
Sentiment towards the ‘Greenback’ soured during the afternoon when the Chicago purchasing managers index printed at 46.3, massively undershooting expectations of 51.8. If this afternoon’s nationwide factory output report also disappoints then there is potential for ‘cable’ to rally further, however, analysts are primed for an expansionary print of 52.5.
Canadian Dollar
The Pound initially rallied by around 130 pips against the Canadian Dollar yesterday thanks to a) the unexpected upgrade to UK GDP and b) predictions that Canadian growth would print badly. However, the ‘Loonie’ clawed back most of its losses during the afternoon when data showed that the Canadian economy shrunk by -0.1% in January, which was slightly better than the median market consensus of –0.2%.
Australian Dollar
The Pound to Australian Dollar exchange rate ticked higher by over a cent yesterday as positive British sentiment buoyed demand for the world’s oldest currency and talk of recession impacted the high yielding ‘Aussie’. However, GPP/AUD’s gains were cut short earlier this morning when Chinese manufacturing output came in better-than-expected, raising hopes of trade relations between Australia and China.
New Zealand Dollar
Sterling appreciated by over 150 pips against the New Zealand Dollar yesterday as investors reacted to news that profits in the nation’s largest export market, dairy, recently fell by -16%.
The ‘Kiwi’ Dollar would have weakened further had it not been for a better-than-anticipated Chinese PMI score of 50.1, which beat expectations of 49.7.
Data Released Today
09:30 GBP Markit UK PMI Manufacturing s.a. (MAR) Medium
13:15 USD ADP Employment Change (MAR) Medium
15:00 USD ISM Manufacturing (MAR) High