Headlines
UK GDP remains at 0.3%
– Sterling slides.
GBP/EUR weakens
– No solution to Greek puzzle yet.
Pound at 21-day low vs. US Dollar
– US GDP downward revision on tap.
GBP/AUD close to 6-yr high
– GBP/NZD hits 4-yr high.
Sterling
The Pound, which was trading at a seven-year high against a basket of its most-traded currencies last week, weakened against the majors yesterday morning in reaction to a softer-than-anticipated first quarter UK GDP report.
With the British production and construction sectors experiencing upgrades to previous economic prints in recent weeks, most analysts had expected yesterday’s report to show that the UK economy expanded by 0.4% in the first quarter. However, a surprise downgrade to Britain’s dominant service sector, which accounts for around 70% of total output, and a sharp rise in imports meant that GDP remained at a rather disappointing 0.3%.
The underwhelming print curtailed Bank of England rate hike bets and subsequently weighed on demand for Sterling.
Euro
The Pound tumbled by around -70 pips yesterday as investors digested the latest UK growth report, which showed that a clunky trade deficit took British economic output lower by -0.9% in the first three months of the year. Paradoxically, the strong Pound was cited as one of the reasons that exports undershot imports in Q1.
Over in Europe attentions were focussed on the labyrinth of Greek debt negotiations. Although Greek officials claim to be close to finding the middle of the maze, many spokespeople from the European Union and the International Monetary Fund claim that the Syriza government is heading for a dead end if it does not come up with more detailed ‘credible’ plans to balance the books. Consequently, the puzzle does not look to be any closer to being solved than it was at the start of the week.
US Dollar
‘Cable’ slipped to a three-week low yesterday in reaction to the underwhelming first quarter UK GDP print. However, technical support levels caught the Pound and prevented it suffering any further losses during the afternoon.
On a yearly basis the US economy was previously reported to have grown at a negligible rate of 0.2% in the first quarter. However, a string of soft US ecostats over the past few months has caused markets to call for a downgrade to -0.9% annual growth in Q1. The Federal Reserve maintains that growth will pick-up later on in the year, which could buffer the ‘Greenback’, but if the report shows a weaker-than-anticipated growth score it could spell trouble for the US Dollar.
Canadian Dollar
Also on the agenda today is a growth report related to the Canadian economy. Markets anticipate 0.2% expansion in March, which, along with the -0.2% contraction in January and the 0.0% stagnation in February, would signal a flat first quarter for the North American nation. Anything below consensus could raise the prospect of further rate cuts from the Bank of Canada, whilst anything higher could bolster demand for the ‘Loonie’.
GBP/CAD was down half a cent on the day yesterday.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by over two cents yesterday, inching ever closer to a new six-year high, due to a report indicating that business investment in Australia is shrinking at its fastest rate for over five years and is likely to continue contracting for the foreseeable future. Resource-related investment was down -14% on the year, building and machinery investment was down -5.3% and non-mining capital expenditure decreased -4.8%.
The ‘Aussie’ bounced lower following the report as many speculators bet that the weak data would move the Reserve Bank of Australia to cut rates again later on in the year.
New Zealand Dollar
Sterling surged to a new four-year high against the New Zealand Dollar yesterday as markets reacted to a downgrade from Fonterra to its milk payout forecast. The 2014⁄2015 season payout was cut to an eight-year low of NZ$4.40 per kilo and this seriously undermined demand for the ‘Kiwi’. However, Fonterra, New Zealand’s largest producer of dairy products, said that prices could recover later in the year and the 2015⁄2016 price was raised to NZ$5.25 per kilo.
Data Released Today
CAD Gross Domestic Product (MoM) (MAR)
CAD Gross Domestic Product (YoY) (MAR)
USD Gross Domestic Product (Annualized) (1Q S)