Sterling
The Pound struggled against the majors yesterday as jittery traders consolidated Sterling positions ahead of this morning’s UK GDP report. Analysts estimate that British growth accelerated from 0.4% to 0.5% in the fourth quarter of 2015 but annualised GDP is tipped to fall from 2.1% to 1.9%, which could stoke fears that the UK economy lost momentum going into the New Year
Recent remarks from Bank of England policymakers suggest that rates will not be raised in the near future due to weak wage growth and soft inflation, and slowing domestic growth is only likely to further cement the market’s dovish outlook.
Euro
Sterling shrunk by around a cent against the Euro yesterday as German consumer confidence printed sturdily at 9.4 and UK mortgage data pointed to a slowdown in home loans during December.
The British Banking Association (BBA) announced that mortgage approvals cooled from 44,533 to 43,975 last month, while Nationwide reported that house price growth slowed slightly from 4.5% to 4.4%. The slightly disappointing data helped drive Sterling lower but it is likely that demand was hurt more by bets of a soft GDP print this morning. It seems that investors were keen to cut their exposure to the Pound ahead of the report in case the figures from the Office for National Statistics (ONS) disappoint.
US Dollar
The Pound to US Dollar exchange rate fell by around a cent yesterday as sentiment towards the UK currency soured and the Federal Reserve kept hopes of a March rate hike alive.
The Fed opted to leave rates on hold at 0.50% and hinted that slowdowns in the global economy could cause policymakers to delay subsequent rate hikes. The statement mentioned that policymakers were ‘closely monitoring global economic and financial developments and assessing their implications for the labour market and inflation’. Most analysts agreed that the term global developments referred to the volatility in China and the general takeaway from the statement was that the US central bank will deter raising rates if stock markets in China continue to slide.
The message was slightly less dovish than most had expected and subsequently the ‘Greenback’ did not weaken following the announcement. Some traders now forecast a further three Fed rate hikes before the end of the year.
Canadian Dollar
Downbeat sentiment weighed on the Pound yesterday allowing the Canadian Dollar to appreciate by around two cents as oil prices ticked higher.
Crude settled above $33 a barrel yesterday, marking a 20% rebound from last week’s multi-year closing low. Oil markets were boosted by news that Russia’s energy ministry was considering working in coordination with the Organisation of the Petroleum Exporting Countries (OPEC) to help cut production and drive prices higher.
However, any potential coordinated move is still a long way off and Russia has previously refused to work in tandem with OPEC so there is every chance that prices could begin to slide again.
Australian Dollar
An uptick in global commodity prices boosted risk sentiment yesterday and helped the risk-sensitive Australian Dollar rack up around 200 pips worth of gains. Sterling did claw back some of its losses during the evening when the Fed hinted that it could delay future rate hikes if global economic conditions continued to deteriorate over the next few months. However, the Fed did not rule out the possibility of another dose of monetary tightening in March and subsequently risk sentiment was not badly hurt by the announcement.
New Zealand Dollar
Overall, the Pound ended the day around a cent higher than it started against the New Zealand Dollar yesterday as investors sold the ‘Kiwi’ following the latest statement from the Reserve Bank of New Zealand.
The RBNZ left rates on hold at 2.50% but markets were unsettled by the suggestion that ‘some further policy easing may be required over the coming year to ensure that future inflation settles near the middle of the target range’. The ‘Kiwi’ weakened following the dovish verdict and it looks possible that we could see the Antipodean currency struggle over the next few months as rate cut bets grow.
Data Released
09:30 GBP Gross Domestic Product (QoQ) (4Q A) Medium 0.5%
09:30 GBP Gross Domestic Product (YoY) (4Q A) High 1.9%
13:00 EUR German Consumer Price Index (YoY) (JAN P) High 0.4%
13:30 USD Durable Goods Orders (DEC P) High -0.5%