Headlines
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UK trade deficit widens
– But trade could contribute to Q2 growth.
•
German industrial output slumps
– Spain posts 5-year high.
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GBP/USD strikes monthly low
– US NFP seen to increase Sep rate hike prospects.
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RBA signals no more rate cuts
– AUD rallies vs. GBP.
Sterling
The Pound remained slightly weaker versus most of the majors on Friday as the hangover from the Bank of England’s triple-whammy of policy announcements on ‘Super Thursday’ weighed on demand for Sterling. In light of the central bank’s latest comments it now looks likely that UK interest rates will not rise until the first quarter of 2016.
On Friday morning the Office for National Statistics (ONS) announced that the UK trade deficit widened from £8.4 billion to £9.2 billion in June. However, the report did not dampen the appeal of the Pound because the ONS also revealed that the total UK trade deficit shrunk by -£3 billion in the second quarter, which it said would equate to a positive contribution to second quarter GDP.
Euro
The Pound to Euro exchange rate tumbled by around -70 pips on Friday despite data showing that German industrial production declined -1.4% during the month of June. The report featured a disappointing -1% dip in exports and a -0.5% fall in imports, which took the annual figure down from 2.4% to 0.6%.
Things looked a little bit brighter in the south of Europe, however, and Spain managed to post an impressive five-year high industrial output score of 4.5%. The strong Spanish figures helped improve sentiment towards the single currency as it gave traders a glimmer of hope that, absent any further shocks in Greece, the Eurozone may be on the path to economic recovery.
The Pound is currently trading close to a weekly low against the Euro.
US Dollar
Sterling tumbled to a monthly low against the US Dollar on Friday after the latest US non-farm payroll report was released. The hugely important labour market figure came in at 215,000, which was considered solid and inline with the Federal Reserve’s assertion that continued improvement in the jobs market would eventually lead to a rise in interest rates.
GBP/USD fell by as much as -80 pips when the figures were announced but ‘cable’ settled at a loss of around -25 pips. The majority of market analysts viewed the solid NFP numbers as a sign that the Fed could begin its tightening cycle in September. This is understandable because jobs are being created, wages are beginning to rise and unemployment is sitting at a seven-year low. However, wage increases (at 2.1%) are still below the Fed’s target of 3.5% and inflationary pressures are virtually absent, which means the decision on whether or not to raise rates in September will remain a very tough one for the world’s most powerful central bank.
Canadian Dollar
The Pound to Canadian Dollar exchange rate held fairly steady on Friday as markets reacted unenthusiastically to a modest 6,600 rise in Canadian employment.
The report confirmed, as expected, that unemployment remained at 6.8% in July but it was not enough to persuade investors to place their faith in the commodity-correlated ‘Loonie’. Global commodity prices have fallen sharply over the last few weeks and traders are wary that the slide could prompt the Bank of Canada to cut rates again later on in the year.
Australian Dollar
The Australian Dollar strengthened by around 220 pips against the Pound on Friday as markets reacted positively to a statement from the Reserve Bank of Australia.
The RBA announced that it was cutting its June 2016 GDP forecasts but Governor Glenn Stevens cheered investors by hinting that interest rates would be locked at the current 2.0% for the foreseeable future. Stevens noted that the recent depreciation in the domestic currency was starting to spark increased demand for Australian products from abroad.
GBP/AUD sunk to its lowest level in almost a month in reaction to the RBA statement.
New Zealand Dollar
The Pound lost out on over -250 pips against the New Zealand Dollar on Friday as traders reacted to an announcement from Fonterra –New Zealand’s largest producer of milk products – indicating that the company would provide New Zealand farmers with substantial financial support to help cope with the latest decrease in dairy prices.
Data Released Today
09:30 EUR Euro-Zone Sentix Investor Confidence (AUG) 18.5