Headlines
UK production fails to impress
– Election jitters persist.
Greek situation worsens
– GBP/EUR remains strong.
GBP/USD hits 5-yr low
– Sentiment favours ‘Greenback’.
Pound hits 2.5-month low vs. ‘Loonie’
– Canadian unemployment impresses.
Sterling
Sterling suffered another dismal day of trading last Friday as markets reacted acerbically to data showing that industrial output remained soft in February.
Despite the recent spate of upbeat PMI survey’s, which had pointed towards an acceleration from 0.6% to 0.7% in the first quarter of the year, analysts are now starting to predict that UK growth could actually have slowed during the first three months of 2015.
Industrial output printed at a measly 0.1% due to a -12% annual fall in oil and gas production and construction output shrank -0.9%. Overall, this leaves actual private sector output down so far in Q1, despite upbeat sentiment from firms and business owners. This compounded the Pound’s miseries as analysts continued to speculate over the possibility that political deadlock could lead to a sharp depreciation in Sterling during the general election period.
Euro
The Euro was the only major currency that had worse problems to deal with than Sterling on Friday. Increased speculation that European leaders could be preparing mechanisms to eject Greece from the currency bloc weighed on the single currency and this allowed Sterling to steal a handful of pips against the Euro.
As things stand, the Hellenic nation still needs to persuade its creditors that it has a comprehensive and realistic set of reform plans before it will receive much-needed financial support. As the saga unfolds more and more newspaper reports have surfaced purporting to reveal that top officials from the Eurogroup – most prominently those from Germany, Austria and Finland – are hatching plans to forge a future for Greece outside of the 19-nation bloc. This is obviously unsettling for investors with exposure in Europe because the threat of contagion following an untimely Greek exit would be considerable.
US Dollar
The Pound to US Dollar exchange rate shed a further -100 pips on Friday, succumbing to a new five-year low in the process. It seems that the combination of UK general election jitters and soft private sector output figures were taken by traders as a sign that Bank of England officials will not be minded to start raising interest rates anytime soon.
Looking at previous tight general elections around the world it becomes clear that they are not good for economic performance. Analysis suggests that the British stock market could fall by up to -10%, which would likely reduce demand for assets priced in Sterling and subsequently have a similarly negative impact on the value of the Pound.
Canadian Dollar
The Pound weakened by over -150 pips against the Canadian Dollar on Friday as downbeat UK industrial data softened demand for Sterling and better-than-expected Canadian labour market figures bolstered the appeal of the ‘Loonie’.
GBP/CAD plunged to a new two-and-a-half-month low during the afternoon when Canadian unemployment printed at 6.8%, beating expectations of 6.9%, due to a surprise surge in job creation of 28,700.
Australian Dollar
Sterling dipped to a new fortnightly low against the Australian Dollar on Friday as negative market sentiment towards the UK tender entered overdrive. It is difficult to predict how far the Pound could fall over the next month or so, but if economic data continues to lag and the political landscape remains jagged and uncertain there is potential for sharp dips in value.
New Zealand Dollar
The Pound was surprisingly resilient against the high-riding ‘Kiwi’ Dollar on Friday, although GBP/NZD did strike a fresh two-week low. But with the New Zealand Dollar approaching parity against its Antipodean rival, the ‘Aussie’, for the first time since 1973 there is scope for persistent strength in the New Zealand Dollar.
Data Released Today
No key data due for release today.