Sterling
The Pound performed pretty well yesterday as news emerged suggesting UK Prime Minister David Cameron was close to agreeing a deal to keep Britain in the European Union. Reports indicated that Cameron had drawn up a draft proposal that would allow Britain to avoid further political integration with the EU and avoid paying in-work benefits to economic migrants. The potential deal was seen as being better than most analysts had expected and therefore boosted prospects of Britons voting to stay in the 28-nation bloc later in the year.
British data showed that UK construction output slowed from 57.8 to a nine-month low of 55.0 in January as job creation cooled to its slowest level for over two years and confidence sunk to a yearly low. However, this morning’s UK service sector PMI is likely to have a bigger impact on Sterling because it accounts for over 70% of GDP.
Euro
The Pound to Euro exchange rate remained fairly flat yesterday as ‘Brexit’ fears receded slightly on news of positive developments in UK PM David Cameron’s talks with European Council President Donald Tusk.
In Germany it was reported that the jobless rate fell unexpectedly from 6.3% to 6.2%, which in turn drove the Eurozone unemployment rate lower from 10.5% to 10.4%. The upbeat labour figures had a positive impact on demand for the single currency.
However, we could see Sterling start to mount a recovery against the Euro over the next few weeks as speculation of further easing from the European Central Bank intensifies in the run-up to March’s meeting.
US Dollar
‘Cable’ held onto Monday’s sharp two-cent gains yesterday as upbeat EU negotiations bolstered the appeal of the Pound.
Having recently broken through resistance it is a good sign that GBP/USD did not succumb to profit-taking stances yesterday and therefore we could see Sterling maintain upward momentum if this week’s economic calendar favours the Pound.
The most important events are likely to be Thursday’s inflation report from the Bank of England – if the bank strikes a positive tone then Sterling could rally – and Friday’s US non-farm payroll report – anything less than 150,000 could knock Federal Reserve rate hike bets further into the future.
Canadian Dollar
The Pound strengthened by around 120 pips versus the Canadian Dollar yesterday as crude oil prices slid another -4%. Oil rallied last week on hopes of OPEC and Russia agreeing a deal to curb production but murmurs from within oil ministries suggest that no deal is likely to go ahead. Due to the Canadian export market’s heavy reliance on the black stuff (formerly known as black gold) the ‘Loonie’ struggled to attract buyers on the currency markets yesterday.
Australian Dollar
The Sterling to Australian Dollar exchange rate rallied by around two cents yesterday. The Reserve Bank of Australia left rates on hold at 2.00% through February and opted not to aggressively jawbone the domestic currency, however, remarks related to potential rate cuts in the future if global economic prospects faltered or inflation dropped meant that the ‘Aussie’ found itself sliding slightly against the Pound. GBP/AUD was also boosted by the prospect of UK PM David Cameron agreeing a better-than-expected new deal to keep Britain in the EU.
New Zealand Dollar
The Pound leaped higher by around 150 pips against the New Zealand Dollar yesterday thanks to a sharp drop in dairy prices at the latest GlobalDairyTrade auction. The average price plunged -7.4%, which put pressure on the commodity-sensitive ‘Kiwi’ as New Zealand GDP bets were lowered slightly and rate cut bets increased.
However, the Pound was forced to give back most of its gains during the evening when New Zealand’s unemployment rate fell, shockingly, from 6.0% all the way to a six-year low of 5.3%.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (JAN) Medium 55.4
10:00 EUR Euro-Zone Retail Sales (YoY) (DEC) Medium 1.5%
15:00 USD ISM Non-Manufacutring Composite (JAN) High 55.2