Sterling
The Pound failed to make any inroads versus the majors yesterday as ‘Brexit’ fears continued to plague the UK currency ahead of June’s EU referendum.
British data confirmed that the economy expanded 0.5% in the fourth quarter – the fastest out of the G7 group of developed economies. This was inline with previous estimates but was considered a positive print because some analysts were concerned that shrinking industrial and construction output could have dragged the figure lower. Indeed, British growth was entirely reliant on domestic demand: consumer spending rose 0.7% while industrial production contracted -0.5% and construction activity cooled -0.4%.
Although the substantial depreciation in Sterling over the past few months is likely to give the UK’s ailing export sector a bit of a boost by making British products less expensive to foreign buyers, the growth outlooks remains muted ahead of the EU vote because business investment is liable to slump during times of uncertainty.
Euro
The Pound to Euro exchange rate touched a fresh 14-month low yesterday as demand for Sterling remained very weak.
However, the Eurozone, which is also likely to suffer as a consequence of a potential ‘Brexit’, saw inflation print lower-than-anticipated. The single currency saw a slight blip when the consumer price index came in at 0.3%, rather than the median market consensus of 0.4%.
The tepid CPI score suggests that European Central Bank President Mario Draghi would not be foolish to increase the bank’s stimulus scheme next month but GBP/EUR is not forecast to rally significantly even if Draghi loosens policy further. Dovish traders are preparing for a -10 basis point cut to the -0.30% deposit rate and a €10 billion boost to the €60 billion a month quantitative easing target.
US Dollar
Sterling avoided sinking to a fresh seven-year low against the US Dollar yesterday but an attempted mid-morning rally following the on-point UK GDP figures petered out.
1.40 GBP/USD, which previously acted as a significant psychological support level, now acts as a resistance barrier that could take a long time for ‘Cable’ to break through.
American data showed that durables goods orders jumped 4.9% in January, which followed a -5.0% fall in December. The ‘Greenback’ strengthened slightly following the report, which came in considerably higher than the market forecast of 3.0%.
This afternoon’s economic calendar is predicted to see the US trade deficit remain at around -$61 billion and fourth quarter annualised GDP revised lower from 0.7% to 0.4%. The soft figures will likely weigh on near term Federal Reserve rate hike bets but GBP/USD should remain capped by technical and psychological resistance.
Canadian Dollar
The Pound plunged by over -150 pips to a new eight-month low yesterday to mark a shocking nine cent depreciation since the start of the week. The fact that crude oil prices fell -2% yesterday and Sterling still tumbled against the commodity-sensitive ‘Loonie’ highlights the extent to which traders have been spooked by the prospect of Briton’s voting to leave the European Union in four months time.
Australian Dollar
The Pound to Australian Dollar exchange rate steadied yesterday, just above the nine-month low it struck on Wednesday. The risk-correlated ‘Aussie’ even managed to escape unscathed from a sharp -6% plunge in Chinese stocks – the kind of event that usually activates risk aversion flows and weighs on the Antipodean currency.
New Zealand Dollar
Sterling slid by over a cent to strike a fresh nine-month low yesterday as ‘Brexit’ fears helped the ‘Kiwi’ rack up an incredible nine-cent appreciation over the first four days of the week.
Data Released
13:00 EUR German Consumer Price Index (YoY) (FEB P) High 0.1%
13:30 USD Advance Goods Trade Balance (JAN) High -$61.300b
13:30 USD Gross Domestic Product (Annualized) (4Q S) High 0.4%
15:00 USD U. of Michigan Confidence (FEB F) Medium 91.0