Sterling
It was reported yesterday that British growth accelerated from 0.4% to 0.5% in the fourth quarter of 2015. Sturdy domestic activity in the dominant services sector contributed heavily to the print as construction and industrial production slowed. On an annual basis the UK economy slowed from 2.1% to a near-three-year low of 1.9%.
The GDP stats matched economists’ forecasts, meaning the market reaction was fairly soft but there was a clear uptick in demand for the Pound.
In 2015, as a whole, the British economy expanded 2.2% – down from the 2.9% recorded in 2014 that put the UK at the top of the pack (of the major advanced economies). Considering the melee in emerging markets in recent months, it is difficult to see British GDP rising back to 2014 levels this year. Domestically, economic activity is strong. But where exports are concerned the global slowdown is only likely to exacerbate an already bleak outlook.
Euro
Sterling rallied by around half a cent against the Euro yesterday as traders breathed a sigh of relief that the UK economy did not run into a brick wall at the end of 2015.
The Pound to Euro exchange rate had tumbled in the run-up to the growth report, so it was only natural to see Sterling mount a mini recovery when the numbers printed inline with expectations.
European data showed that German consumer prices increased from 0.3% to 0.5% at the beginning of the year, which is encouraging considering that oil prices have continued to weigh on inflation through January. The better-than-anticipated German numbers mean that the single currency could mount a rally later this morning if the Eurozone CPI figures also impress. Analysts forecast a rise from 0.2% to 0.4%.
US Dollar
The Pound pushed ahead against the US Dollar yesterday, strengthening by over a cent to a fortnightly high as sturdy UK growth figures supported demand for Sterling.
Across the pond in the United States, economic sentiment was hurt by a damning -5.1% dip in durable goods orders, which massively missed expectations of -0.7%. Durable goods are typically expensive to buy and for this reason traders use the index as a gauge for business confidence.
There is potential for Sterling to put in another decent performance today because US growth data is anticipated to show a marked slowdown in the final quarter of 2015. The median market consensus suggests that activity cooled from an annual rate of 2.0% to 0.8% (a quarterly score of just 0.2%) and if these estimates prove accurate it will be interesting to see whether investors opt to push back their Federal Reserve rate hike bets.
Canadian Dollar
GBP/CAD mustered a 100-pip gain yesterday as hopes of a coordinated oil production cut between Russia and OPEC were dashed.
Crude jumped 8% when rumours of a deal to cut production by -5% hit the newswires, however, this rally crashed when an OPEC delegate stated that Saudi Arabia has no intention of reducing output. The Pound shot up against the risk-sensitive Canadian Dollar in the afternoon in response to the Saudi denial.
However, the ‘Loonie’ could stage a fightback this afternoon if Canadian GDP rebounds from October’s -0.2% contraction with a +0.2% expansion in November.
Australian Dollar
A combination of relief, following the on-target UK GDP numbers, and despair following the false flag OPEC / Russian oil deal, helped drive Sterling higher by around half a cent against the risk-sensitive ‘Aussie’ Dollar yesterday.
Prior to the oil fiasco, the Pound had been trading at its lowest level against the Australian Dollar for six months.
New Zealand Dollar
Sterling remained strong against the New Zealand Dollar yesterday as markets continued to digest the Reserve Bank of New Zealand’s dovish policy statement on Thursday evening. It now looks entirely likely that the RBNZ could look to prop-up anaemic price pressures in the Antipodean economy by cutting interest rates again over the next few months.
GBP/NZD ticked higher by around a cent during the afternoon when oil price fluctuations entered overdrive.
Data Released
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (JAN) High 0.4%
13:30 USD Advance Goods Trade Balance (DEC) High -$60.000b
13:30 USD Gross Domestic Product (Annualized) (4Q A) High 0.8%
13:30 CAD Gross Domestic Product (YoY) (NOV) High 0.2%