Headlines
Sterling dips as housebuilding slows –
Despite BoE rate hike talk.
GBP/EUR down -80 pips –
‘Brexit’ fears swell on Corbyn Labour victory.
World awaits Fed decision on Thursday –
Fed rate hike would hurt ‘Cable’.
Oil prices down on Goldman forecast –
Pound rises slightly vs. ‘Loonie’.
Sterling
Sterling struggled against most of the majors on Friday as UK construction output declined. Data from the Office for National Statistics showed that housebuilding activity fell by the most in over two years during January, which caused construction output to decline by -1.0%. Holders of the Pound were also anxious regarding the Labour leadership contest, which saw Eurosceptic left-winger Jeremy Corbyn claim a landslide victory over his opponents on Saturday.
In a separate news item Bank of England policymaker Kristin Forbes noted that, contrary to popular opinion, stronger exchange rates don’t typically reduce inflationary pressures in advanced modern economies. Forbes commented that the bank might need to begin raising interest rates sooner-than-anticipated if it emerges that the strong Pound isn’t constricting price growth.
Euro
The Pound to Euro exchange rate softened by around -80 pips on Friday afternoon as investors pulled out of Sterling positions ahead of Jeremy Corbyn being named head of the Labour Party on Saturday. Corbyn’s Eurosceptic views were seen to increase the likelihood of Britain leaving the European Union, which weighed on economic sentiment as it is believed that businesses could leave the UK following a potential ‘Brexit’.
There is only one economic release to look out for today: a Eurozone industrial production print, which is anticipated to show that output slowed from 1.2% to 0.6% during July.
However, on Tuesday key UK inflation data is predicted to show that price pressures ground to a halt last month, which could hurt BoE rate hike bets. Some analysts expect the CPI figure to print in negative territory, which would likely have a significantly negative impact on the Pound.
US Dollar
The Pound to US Dollar exchange rate drifted lower by around -15 pips on Friday as a better-than-anticipated US producer prices score of 0.9% bolstered the appeal of the ‘Greenback’.
There are a few potentially interesting US ecostats due for release this week but these will most likely be overshadowed by Thursday’s interest rate decision from the Federal Reserve. The consensus opinion is that the Fed will elect to leave interest rates on hold at this juncture due to subdued wage growth, soft inflation and headwinds from China but there are some hawks out there who feel that sturdy progress in the labour market and relatively upbeat domestic growth are evidence enough for the case to begin the normalisation of monetary policy.
‘Cable’ could surge if the US central bank remains in wait-and-see mode on Thursday evening but GBP/USD will likely tank if the Fed does decide to begin raising rates.
Canadian Dollar
Sterling registered a mild daily gain against the Canadian Dollar on Friday as demand for the commodity-sensitive ‘Loonie’ plunged following comments from Goldman Sachs on the prospect of crude oil prices plummeting further in 2016.
Goldman Sachs commented that oversupply emanating from both OPEC and non-OPEC nations, plus weakened demand from China as economic activity cools, would likely depress oil prices further over the coming months. Goldman even posited that it was possible that crude could fall to as low as $20 per barrel if the situation continues to escalate. This warning hit commodity markets and led to a -1.3% drop in the value of the ‘black gold’. However, it must be noted that Goldman forecast that oil prices would reach $200 per barrel back in 2010 – an estimate that has subsequently proven to be far too pessimistic.
Australian Dollar
Despite mounting an early morning rally the Pound eventually lost out by around half a cent against the Australian Dollar on Friday as concerns over Britain’s future in the European Union played on investors’ minds.
Trading patterns in GBP/AUD are likely to be dictated by tonight’s minutes report from the Reserve Bank of Australia. The RBA left rates on hold last time out but demand for the ‘Aussie’ could be compromised if the minutes reveal that policymakers are strongly concerned over the impact that the recent slowdown in China could have on the domestic economy. Conversely, if the report strikes a more positive note we could see the ‘Aussie’ Dollar surge up the currency ladder.
New Zealand Dollar
Sterling retained a sturdy exchange rate against the New Zealand Dollar on Friday following the Reserve Bank of New Zealand’s decision to cut the benchmark interest rate earlier on in the week. Data on Tuesday could also hurt the ‘Kiwi’ if market analysts’ predictions of a -$1.5 billion current account deficit are proven to be accurate.
Data Released Today
09:00 EMU EUR Industrial Production w.d.a. (YoY) (Jul)