Sterling
The Pound recovered versus most of the majors on Friday thanks to profit taking stances following a day of significant losses on Thursday. UK data showed that construction output rose by 0.5% during December but it is unlikely that Sterling was boosted by the report because analysts were prepared for a higher print of 0.8%.
Having previously priced in a rise in UK interest rates at the beginning of the year, markets now expect the Bank of England to avoid hiking rates until 2020, with some analysts even suggesting that a 2016 rate cut is more likely than a 2016 rate rise. This shift in sentiment has weighed heavily on the Pound so far this year so it will be interesting to see whether Sterling can recover or whether it will depreciate further over the next few weeks and months.
Euro
Sterling rallied by around 80 pips against the Euro on Friday as investors sought to lock in profit from the worst Pound to Euro exchange rate in 15 months.
The single currency also suffered as soft growth figures weighed on economic sentiment in the currency bloc: the Eurozone racked up quarterly GDP growth of 0.3% in the fourth quarter but traders were concerned by downbeat figures from some of the continent’s most fragile economies. Portuguese output improved by just 0.2%, Italy barely grew at all with 0.1% growth and the Greek economy contracted -0.6%, falling back into recession. The Euro was also hurt by a -1.0% contraction in Eurozone industrial output in December.
Considering the dreadful start to the year in European equity markets investors are growing increasingly worried that the flagging Eurozone economy could be headed for the next leg of the enduring crisis.
US Dollar
The Pound to US Dollar exchange rate rallied by just under half a cent on Friday as traders reacted to an unexpected dip in US consumer sentiment.
The Michigan confidence survey fell from 92.0 to 90.7 thanks, in part, to a significant drop in inflation projections. The survey saw America citizens reduce their 5-10 year inflation expectations from 2.7% to 2.4%, which marked the lowest reading in the history of the series. With talk of further Federal Reserve interest rate hikes fading the ‘Greenback’ could find itself sliding as investors rein in their bets of further tightening.
Canadian Dollar
The Canadian Dollar was the only currency that the Pound failed to make ground against on Friday. Sterling fell by around half a cent as surging oil prices stoked demand for the ‘Loonie’.
Oil rose by around 5% as investors continued to speculate that OPEC leaders would meet in the coming weeks to discuss a plan to curb oil production in order to help drive prices higher.
Australian Dollar
Sterling strengthened by around 40 pips against the Australian Dollar on Friday as global risk aversion trends weighed on the ‘Aussie’ and investors started to plough back into the Pound following a day of sharp losses on Thursday.
New Zealand Dollar
The Pound recovered from a six-month low to rally by around three cents against the New Zealand Dollar on Friday as Sterling strengthened across the board after a week of notable losses.
Data Released
14:00 EUR ECB’s Draghi Speaks in EU Parliament Committee in Brussels Medium
21:45 NZD Retail Sales Ex Inflation (QoQ) (4Q) Medium 1.6%