· Pound up on profit-taking – CIPD predicts low wage growth.
· Sterling rallies eight cents vs. Euro in 2015 – Single currency rises in December.
· ‘Cable’ climbs from eight-month low – British wage growth could hurt Sterling in 2016.
· CAD down on Saudi oil minister comments – GBP/CAD rallies 75 pips.
Sterling
Despite parts of Britain suffering further damage from Storm Frank and the release of a damning wage report from the Chartered Institute of Personnel Development (CIPD) the Pound managed to strengthen slightly against some of the majors yesterday. It seems like Sterling’s gains were related to investors locking in profit rather than any material shift in market sentiment towards the Pound.
The CIPD said that pay growth will remain at around 2.0% in 2016, well below the Bank of England’s projections for wages to increase by around 3.5%. If the CIPD is correct then it may prove difficult for the hawks at the BoE to argue for higher interest rates.
Euro
The Pound to Euro exchange rate drifted higher by around 20 pips yesterday to leave GBP/EUR eight cents higher on the last day of 2015 than it was on the first.
This year the Euro has survived another Greek crisis threatening to tear apart the 19-nation currency bloc and the single currency has also emerged stronger after a long period of speculation that the European Central Bank would raise its asset purchasing target in December. However, Sterling’s strong gains during the first half of the year mean that the UK currency came out on top.
US Dollar
‘Cable’ fluctuated within a tight half-cent range yesterday as Sterling fought to stay above Tuesday’s eight-month low.
Recent projections, including the CIPD’s damning wage growth report, indicate that Sterling could struggle to gain ground against the US Dollar in the first half of next year because declining oil prices and soft earnings trends could restrict inflationary pressures and persuade the BoE to remain on the sidelines. In the past the ‘Greenback’ has suffered losses during the first few months of a new hiking cycle, however, unless we see a marked uptick in British wage pressures GBP/USD could remain capped by resistance at 1.50 in the first few months of the New Year.
Canadian Dollar
Sterling rallied by around 75 pips against the Canadian Dollar yesterday as markets reacted to the latest signs from Saudi Arabia that OPEC has no plans to limit oil production to help drive prices higher in 2016. Saudi oil minister Ali al-Naimi declared the Kingdom would ‘satisfy the demand of its customers [and] no longer limit production,’ which drove oil prices lower by around -1.6% as supply glut fears intensified.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened mildly by 30 pips yesterday as perceived riskier assets weakened in reaction to the Saudi oil minister’s bearish announcement, which put pressure on commodity prices.
New Zealand Dollar
The Pound rose by around a cent against the New Zealand Dollar yesterday as risk sentiment softened and investors locked in profit from Sterling’s plight at the beginning of the week. GBP/NZD recovered from a six-month low but market positioning suggests the ‘Kiwi’ could appreciate further over the next few weeks.