Sterling
The Pound performed a little bit better yesterday than in recent trading sessions. Markets were pleased by a two-year high mortgage approvals print of 74,581 and a decade-high consumer credit expansion of 9.1%.
However, this morning’s headline report is tipped to show that manufacturing output – a key driver of British economic sentiment – slowed from 52.9 to 52.3 in February. Investors will also be wary of piling back into the Pound too soon after last week’s sharp losses when London Mayor Boris Johnson announced he was supporting the ‘Brexit’ camp ahead of June’s EU referendum. Indeed, analysts at UBS released a note yesterday warning that the Pound could fall to parity versus the single currency if Britons were to vote to leave the 29-nation bloc.
Euro
Sterling strengthened by over a cent against the Euro yesterday in response to some worse-than-anticipated Eurozone inflation data.
Consumer prices shrank -0.2% in February, confounding expectations of 0.0% and boosting the chance of further stimulus measures from the European Central Bank in March. Speculative investors now reckon the bank will cut the deposit rate -0.20% to -0.50% and extend QE until December 2017 in an effort to stave off deflation. Some ultra doves even think the ECB could raise its €60 billion a month asset purchasing target later this month.
The single currency is liable to weaken in the days leading up to next week’s ECB meeting but GBP/EUR should remain more insulated than most due to the looming threat of a British exit from the European Union.
US Dollar
The Pound to US Dollar exchange rate touched a fresh seven-year low yesterday but ended up rallying by around half a cent before the end of the London session.
Yesterday it was reported that US pending home sales dipped -0.9%, the Chicago manufacturing PMI sank from 55.6 to 47.6 and the Dallas Fed manufacturing activity index tumbled even deeper into negative territory from -30.0 to -31.8.
Although the ‘Greenback’ suffered from some downbeat domestic data during the afternoon it seems more likely that profit-taking at the end of the month drove GBP/USD higher yesterday, suggesting that there are further losses in store. Analysts have 1.35, a 30-year low, clearly in their sights and it is entirely possible that the Pound could weaken to a multi-decade low over the next few weeks.
Canadian Dollar
Sterling jumped higher by over half a cent against the Canadian Dollar yesterday as investors finally took the opportunity to cash in on the lowest GBP/CAD rates in over nine months.
Crude oil prices rallied 3% as China announced new stimulus measures and Saudi Arabia pledged to work with other crude producing nations to limit market volatility. The stabilisation of oil prices, if it continues, should weigh on GBP/CAD in the run-up to June’s EU vote.
Later today Canadian GDP is tipped to slow from 0.2% to 0.0%.
Australian Dollar
Sterling remained fairly flat against the Australian Dollar yesterday. The ‘Aussie’ strengthened initially in reaction to the People’s Bank of China’s decision to cut its RRR rate by -50 basis points to 17%, meaning that banks are required to hold less funds in reserve in a bid to boost cheaper lending. The stimulus announcements bolstered the appeal of the risk-sensitive Antipodean currency but demand for the Pound increased towards the end of the London session.
New Zealand Dollar
The Pound inched higher by over a cent against the New Zealand Dollar yesterday as analysts began mulling over the possibility of a rate cut from the Reserve Bank of New Zealand over the next few months. ANZ Bank now reckons the benchmark interest rate will be slashed -50 basis points form 2.50% to 2.00% by the end of the year.
Data Released
08:55 EUR German Unemployment Rate s.a. (FEB) High 6.2%
09:30 GBP Markit UK PMI Manufacturing s.a. (FEB) Medium 52.3
10:00 EUR Euro-Zone Unemployment Rate (JAN) Medium 10.4%
13:30 CAD Gross Domestic Product (YoY) (DEC) High 0.0%
15:00 USD ISM Manufacturing (FEB) High 48.5
NZD Dairy Auction Avg. Winning Price MT (MAR 1) High