Headlines
UK construction improves –
Profit taking hurts Sterling.
Pound down -100 pips vs. Euro –
Eurozone CPI due Tues.
‘Cable’ softens slightly –
But US data disappoints, again.
Commodity currencies rally on soft US data –
Risk sentiment improves.
Sterling
The Pound stretched its recent gains against the majors on Friday morning in reaction to some upbeat data related to the UK construction sector. A better-than-anticipated reading of 3.9% in March smashed forecasts of 2.5% and caused economists to recalculate their first quarter GDP estimations; it is now believed that the British economy grew by 0.4% rather than the originally announced 0.3% in the first three months of the year.
However, Sterling was unable to hold onto its morning gains for long and profit taking stances took the Pound lower by the end of play; it seems that traders were happier to take advantage of the elevated Sterling exchange rate rather than hold out for further appreciations.
Euro
The Pound to Euro exchange rate shed around -100 pips on Friday in what can only be seen as a case of weekend profit taking. British data actually beat the market consensus and, in the absence of any significant Eurozone economic reports, the only noteworthy development in Europe was ratings agency DBRS’ decision to downgrade Greek debt to CCC. So, the downward move in GBP/EUR appears to have been motivated by a desire to cash-in on the recent Sterling rally – which took the Pound close to a seven-year high against the single currency last week – rather than a surge of confidence in the Euro.
Later this week both Eurozone and UK CPI reports are set to show stagnant inflation of 0.0% in April. If either report impresses or disappoints then it could have a reciprocal effect on its respective currency.
US Dollar
The Pound came close to striking a fresh five-month high against the US Dollar on Friday as sturdy British construction data and another round of disappointing US ecostats bolstered demand for ‘Cable’. However, the GBP/USD rally tailed off before the final bell as markets sought to lock in profit before the weekend and this week’s UK CPI data.
The latest disappointing American data releases saw US industrial production contract -0.3% in April when a 0.0% figure was expected, manufacturing output stall at 0.0% when a 0.2% expansion was anticipated, and consumer confidence sink to a seven-month low of 88.6, when a much better score of 95.9 was expected. The recent run of sinking economic indicators, particularly the fifth month on the trot of decline in the industrial sector, is likely to have a downward impact on Federal Reserve sentiment towards raising interest rates and this could subsequently lead to further gains for the Pound if British data continues to outperform the US.
Canadian Dollar
Sterling struck a fresh two-month high against the Canadian Dollar on Friday as analysts speculated over the possibility that the recent rally in CAD could prompt the Bank of Canada to intervene in the currency market to ensure that Canadian exports are not negatively impacted by the rising domestic currency. The BoC is adamant that rates will not be cut in the near future but markets are likely to retain a cautious approach to the ‘Loonie’ until more evidence that the Canadian economy has recovered from last year’s sharp plunge in crude oil emerges.
GBP/AUD set off on the right path on Friday as British construction data impressed, but the ‘Aussie’ clawed its way back during the afternoon thanks to the soft US data, which boosted risk sentiment and therefore bolstered the appeal of the commodity-sensitive Australian Dollar. Traders will look to Tuesday morning’s Reserve Bank of Australia minutes report for clues as to whether the central bank intends to hold rates or loosen further over the next few months.
New Zealand Dollar
The Pound depreciated by around a cent against the New Zealand Dollar on Friday as profit-taking and improved appetite for riskier assets – following the Fed rate hike-dampening US industrial production numbers – helped drive the ‘Kiwi’ higher.
Data Released Today
15:00 USD NAHB Housing Market Index (MAY)