Sterling
The Pound struggled on Friday, as did David Cameron in his negotiations with EU leaders for a better European deal for Britain. ‘Brexit’ fears escalated as talks between the UK Prime Minister and European Council President Donald Tusk broke down, despite earlier reports suggesting that Cameron was close to agreeing an ‘Emergency Brake’ to prevent EU migrants from receiving in-work benefits for the first four years of their stay. The setback was seen to increase the prospect of the negotiations lasting longer-than-expected and this damaged demand for Sterling.
Today’s key UK data report is predicted to show that British manufacturing activity slowed from a PMI index of 51.9 to 51.6 in January, which is unlikely to support the Pound.
Euro
The Pound to Euro exchange rate remained fairly flat on Friday as German retail sales disappointed but Eurozone inflation improved.
GBP/EUR inched higher in the early morning hours in reaction to a lower-than-anticipated German retail sales print of 1.5%, which marked a significant slowdown on the previous month’s score of 2.4% and was less than the median market forecast. However, sentiment towards the single currency improved later in the morning when the headline Eurozone consumer price inflation index came in at 0.4% for January – double December’s print of 0.2%. The core CPI index, which strips out the volatile impacts of food and fuel fluctuations, performed even better: rising unexpectedly from 0.9% to 1.0%.
US Dollar
Sterling weakened by around -150 pips against the US Dollar on Friday as ‘Brexit’ fears drove GBP/USD through technical support.
Data in the United States actually printed poorly, with US GDP slowing from 2.0% to 0.7% in the fourth quarter. Analysts had been primed for a slightly higher score of 0.8%, meaning that the low score stoked concerns regarding the Federal Reserve’s interest rate hiking cycle. Some traders said that the growth slowdown proved the Fed was wrong to begin tightening policy in December, while others took a softer approach and argued that the December decision was correct but noted that policymakers could delay future hikes until the latter half of the year.
A separate report showed that US consumer confidence shrunk form 93.3 to 92.0 last month but the Pound was unable to recover versus the ‘Greenback’ due to negative EU-linked sentiment of its own.
Canadian Dollar
The Pound weakened by around -250 pips against the Canadian Dollar on Friday, falling to its lowest level in almost two months, as ‘Brexit’ concerns weighed on Sterling and a rebound in Canadian GDP bolstered the appeal of the ‘Loonie’.
A decent 0.3% monthly rise in economic activity helped Canadian growth rebound from -0.2% contraction in October with +0.2% expansion in November. The commodity-sensitive ‘Loonie’ was also boosted by the value of its most lucrative export – crude oil – rising to a three-week high.
Australian Dollar
The Pound to Australian Dollar exchange rate succumbed to a fresh six-month low on Friday as Asian markets rallied in response to the Bank of Japan’s surprise decision to cut its excess reserve rate to -0.10%. The move to cut rates into negative territory was designed to get banks lending in order to support spending, rather than hoarding their funds at the BoJ. Stocks, shares and risk assets like the ‘Aussie’ Dollar rallied on the announcement in anticipation of increased liquidity in the region.
New Zealand Dollar
The Sterling to New Zealand Dollar exchange rate weakened by around -150 pips on Friday as a combination of downbeat ‘Brexit’ fears and upbeat BoJ stimulus bets drove GBP/NZD lower.
Data Released
09:30 GBP Markit UK PMI Manufacturing s.a. (JAN) Medium 51.6
13:30 USD Personal Consumption Expenditure Core (YoY) (DEC) High 1.4%
15:00 USD ISM Manufacturing (JAN) High 48.5