Headlines
UK construction prints at 2.6% –
Reflects 0.2% expansion in Q2.
Eurozone Q2 GDP downgraded to 0.3% –
Euro ministers approve €86bn Greek bailout.
GBP/USD up 30 pips –
Traders await Fed policy statement on Wed.
Canadian Dollar declines –
‘Kiwi’ weakens vs. Pound.
Sterling
The Pound remained fairly well-bid on Friday as markets reacted to some decent UK construction data. Although the annualised construction index printed below the median consensus of 3.3%, June’s score of 2.6% marked a sturdy improvement on an upwardly revised print of 2.1% in May and this helped stoke demand for Sterling. The Office for National Statistics (ONS) reported that on a quarterly basis the sector expanded by 0.2% in Q2, which was an upgrade on the previously reported 0.0%. But, because construction only accounts for around 6-7% of total British economic output, the positive revision was not deemed strong enough to tip the UK Q2 GDP score up from 0.7% to 0.8%.
A separate report, put together by a board of local councils, suggested that Britain should train less young hairdressers and push for increased numbers of bricklaying apprenticeships to help meet growing demand for new residential construction projects.
Euro
Although European investor spirits were raised by the approval of Greece’s new €86 billion bailout package by Eurozone ministers on Friday night, the Pound appreciated by around 80 pips against the Euro on the final day of last week’s session, as the single currency had previously been wounded by some weaker-than-anticipated GDP figures.
The latest economic output results showed that stagnation in France, softer output in Germany and a mild contraction in Finland in the second quarter meant that the currency bloc as a whole only actually grew by 0.3%, compared to previous estimations of 0.4%. The disappointing growth numbers hurt the Euro. Demand also suffered following a -0.6% dip in monthly Eurozone consumer prices. The headline year-on-year figure remained at 0.2% as expected.
US Dollar
The Pound inched higher by around a third of a cent against the US Dollar on Friday despite a robust US industrial production report, which signalled growth of 0.6% in the sector during July. Last month’s sturdy print marked a swift acceleration from the 0.3% witnessed in June and suggests factory-based industries have rebounded from the dire start to the year when US production contracted for five months on the trot.
With all this talk of a potential September rate hike from the Federal Reserve being dependent on economic data one would be forgiven for expecting the ‘Greenback’ to rise following the upbeat domestic report. However, the fact that the US Dollar was unable to mount anything but a fleeting rally in the aftermath of the print suggests that last week’s triple-whammy of surprise currency devaluations in China is still weighing on the minds of those looking to second-guess the Fed’s next move.
If this week’s Fed policy statement shows that policymakers are suitably concerned with the goings-ons in China then we could see Sterling rack up more gains against the Dollar. GBP/USD is currently sitting near the top of a long-running tight range, which means that it will take a significant shift in sentiment to propel the Pound higher – but also suggests that Sterling’s gains could be rampant if they do materialise.
Canadian Dollar
Sterling gobbled up another lot of daily gains against the starved-of-demand ‘Loonie’ on Friday as investors considered the disastrous impact that an extended period of lower oil prices could have on the North American economy. Although the Canadian Dollar has depreciated rapidly – around 20 cents against the Pound – in the last three-and-a-half months the nation’s exporters have not seen a significant uptick in demand from the relative discount that the weaker currency provides. This is a worrying sign for Canada and could prompt policymakers at the Bank of Canada to loosen monetary policy again before the end of the year.
Australian Dollar
The Pound remained flat against the Australian Dollar for most of Friday’s session as investors paused for thought following the volatile week in GBP/AUD trading. The ‘Aussie’ had garnered support following a shift in rhetoric at the Reserve Bank of Australia, which was seen to pre-empt a period of neutral monetary policy. However, the trifecta of interventions in the currency market from the People’s Bank of China caused some traders to re-adjust their bets for more easing from the RBA.
New Zealand Dollar
The Sterling to New Zealand Dollar exchange rate retained a 150 pip appreciation on Friday as the impact of softer-than-anticipated domestic retail sales weighed on the ‘Kiwi’. The sharp turnaround from 2.3% growth to just 0.1% weighed on economic sentiment and was seen to bode badly for GDP growth in the short term.
Data Released Today
09:30 GBP Construction Output s.a. (YoY) (JUN)
10:00 EUR Euro-Zone Consumer Price Index (YoY) (JUL F)
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (2Q A)
14:15 USD Industrial Production (JUL) Medium 0.3%
15:00 USD U. of Michigan Confidence (AUG P)