•
UK trade deficit improves minimally –
As oil price declines reduce import spending.
•
Sterling weakens versus Euro –
GBP/EUR hits 11-month low.
•
‘Cable’ sinks to five-year low –
US NFP report impresses at 292,000.
•
Chinese volatility continues –
GBP/NZD hits three-week high.
Sterling
On Friday it was reported that the UK trade deficit narrowed slightly in November thanks to a decline in the price of oil. The Office for National Statistics (ONS) announced that oil imports cost -£0.5 billion less in November than in October as the monthly deficit cooled from £3.5 billion to £3.2 billion and the yearly figure fell from £11.2 billion to £10.6 billion.
However, the slender improvement in public finances did little to bolster the appeal of the Pound because analysts estimated that net trade would still act as a drag on GDP growth in the fourth quarter.
Euro
The Pound to Euro exchange rate plunged to an 11-month low on Friday as investors drove Sterling down by over a cent.
Sterling has struggled against the single currency since November and GBP/EUR is currently around ten cents lower than it was this time two months ago. Traders no longer anticipate a near term interest rate from the Bank of England and expectations of further significant easing from the European Central Bank have shrunk considerably following ECB President Mario Draghi’s decision not to raise the asset purchasing target in December.
The next key support level for Sterling suggests that we could see the Pound weaken by another four cents to January 2015 lows, however, it is entirely possible that we could see traders lock-in profit from the current 11-month low and this could drive GBP/EUR higher at the start of the trading week.
US Dollar
Sterling tumbled to a fresh five-and-a-half-year low against the US Dollar on Friday as markets reacted to stronger-than-anticipated jobs figures in the United States.
The headline December non-farm payrolls total printed robustly at 292,000, smashing economists’ expectations of 200,000. The latest NFP report also featured upgrades to October’s score from 298,000 to 307,000 and November’s from 211,000 to 252,000. The jobless rate remained at 5.0%.
Although the potent jobs gains boosted the ‘Greenback’ against the Pound, the jury remained out among analysts over when the Federal Reserve would next raise interest rates. Some saw the robust headline figures, along with the Fed’s own projection chart, which suggests 2016 will see four more 25 basis point rate hikes, as justification for another piece of monetary tightening as soon as March. However, others cited a softer-than-anticipated rise in wages – of 2.5% compared to forecasts of 2.7% – as reason enough to suggest that Fed President Janet Yellen and her policy team will wait until the second half of the year before risking unsettling the recovery with another rate increase.
Canadian Dollar
Sterling fluctuated by around 150 pips against the Canadian Dollar on Friday but ultimately the pair closed for the day at a similar level to which it opened.
The ‘Loonie’ was boosted by a surprise 23,000 jump in employment, which outshone predictions of just 8,000 but was not enough to bring headline unemployment down from 7.1%. However, concerns relating to China, where it emerged authorities had been intervening in the currency market to prop-up the Yuan, fuelled risk aversion trends and these weighed on the commodity-sensitive ‘Loonie’.
Australian Dollar
The Australian Dollar gained ground initially against the Pound on Friday morning when the People’s Bank of China (PBoC) set a higher fix for the Yuan, however, demand for the risk-correlated ‘Aussie’ cooled when reports surfaced suggesting that the PBoC had been accepting heavy losses to artificially drive the Chinese currency higher. This confused traders after previous attempts to let the Yuan weaken and subsequently confidence was low among traders in the Asia Pacific region.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rallied by around a cent to a three-week high on Friday as volatility in China weighed on investors’ appetite for risk. Speculation of another near term interest rate hike from the Federal Reserve, following the robust NFP report, also caused the high-beta ‘Kiwi’ to depreciate.
Data Released
13:15 CAD Housing Starts (DEC) Medium 211.9k
15:00 USD Labor Market Conditions Index Change (DEC) Medium 0.5