Headlines
•
UK retail sales rise in November
– Black Friday online deals boost British spending.
•
Pound rises on robust data
– 5.0% annual jump in consumer spending.
•
Federal Reserve hikes interest rates
– GBP/USD remains below psychological support.
•
Commodity sell off drags risk currencies lower
– Canadian CPI on tap.
Sterling
Sterling grew stronger yesterday thanks to some better-than-expected domestic consumer spending data. The Office for National Statistics (ONS) reported that retail sales volumes jumped 1.7% in the month of November as British shoppers poured into stores to stock up early on Christmas goods. A bumper 12.7% annual rise in online sales suggested that although the chaos of Black Friday was missing from high street stores, the spirit of the US-style discount day lived on through desktops, laptops, tablets and smartphones.
The robust monthly score, which massively outshone estimates of 0.6%, drove the annual figure to 5.0%, which in turn trounced forecasts of 3.0%.
Euro
The Pound to Euro exchange rate held relatively firm yesterday as foreign exchange markets avoided the potentially painful volatility that some analysts had predicted would occur following the first Federal Reserve rate hike. It seems that investors were suitably prepared for the decision, the first of its kind since 2006, when Janet Yellen announced it on Wednesday evening.
Data yesterday showed that the IFO’s measure of German business confidence slowed minimally in December from 109.0 to 108.7. However, the negligible dip in sentiment was not enough to impact the single currency.
US Dollar
‘Cable’ remained below key psychological support yesterday as markets held steady following the Fed’s landmark interest rate hike on Wednesday evening.
The robust UK retail sales report was not enough to lift the Pound back above technical resistance and this suggests that we could see GBP/USD drift lower over the coming weeks and months. A lot will depend on the ability of US policymakers to continue hiking rates. If the US economy continues to grow and the Fed manages to raise borrowing costs by a further 100 basis points in 2016 then the Pound to US Dollar exchange rate could move materially lower. But if the tightening proves premature and the world’s largest economy starts to stutter, causing the Fed to hold off on further hikes, then there is every chance that GBP/USD will fight back above key psychological resistance.
Canadian Dollar
The Pound rallied by around 150 pips against the Canadian Dollar yesterday as crude oil prices continued lower. The killer combination of tighter borrowing conditions south of the border and globally lower oil prices weighed on the risk-sensitive ‘Loonie’ yesterday.
Today’s session could give the ‘Loonie’ some reprieve if data prints inline with expectations of a jump in annual consumer prices from 1.0% to 1.5%.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around 120 pips yesterday as commodities such as base metals, oil and gold fared badly.
Gold proved particularly susceptible to the Fed rate hike because the safe-haven precious metal is often used as a hedge against inflation, and higher interest rates in the world’s largest economy are only likely to dampen the already soft prospects for global inflation. Australia is the second largest producer of gold in the world and subsequently the ‘Aussie’ Dollar was negatively impacted by the dip in demand for gold, which took the precious metal down to a six-year low of $1,049 a troy ounce.
New Zealand Dollar
Sterling appreciated by around 150 pips against the New Zealand Dollar yesterday as commodity-sensitive currencies joined commodities in a global sell off in the aftermath of the first Fed rate hike for nine years.
Data Released Today
13:30 CAD Consumer Price Index (YoY) (NOV) 1.5%
14:45 USD Markit US Services PMI (DEC P) 55.9