Sterling
Sterling investors rejoiced yesterday when data showed that George Osborne was on track to meet his deficit reduction goals for the 2015⁄16 financial year…
Nope, sorry, that’s an April Fools!
The real news of the day was that British GDP growth came in at 2.1% in the fourth quarter, beating forecasts of 1.9%. However, markets were disappointed by the details of the report, which showed that the current account deficit rose to 7% of GDP in the final three months of the year. The eye watering deficit figures damaged sentiment towards Sterling because they marked the worst scores since records began in 1948.
Euro
The Pound to Euro exchange rate declined by around half a cent yesterday as traders reacted to the disappointing UK current account deficit numbers, which took on heightened importance in the run-up to June’s EU referendum. The fear is that the political instability posed by Britain leaving the European Union could deter investment in the UK, which would make it even harder for the government to service the colossal deficit.
Across the channel in the Eurozone it was reported that consumer prices inched up slightly across the currency bloc in February. The Eurozone inflation rate rose from -0.2% to -0.1% but the impact on the Euro exchange rate was limited because Wednesday’s sturdy German CPI figure had raised hopes of a stronger performance.
US Dollar
Sterling rose minimally against the US Dollar yesterday as sentiment towards the ‘Greenback’ remained soft following Federal Reserve President Janet Yellen’s dovish policy statement earlier in the week.
The next key event for the pair is this afternoon’s US non-farm payrolls report, which is tipped to see job creation hit 210,000 in March. Unless the reading massively diverges from the market forecasts it is unlikely to have a lasting impact on the US Dollar because Fed policymakers appear comfortable with activity in the labour market; it is extraneous factors such as the slowdown in China, the weakness in commodity markets and the general health of the global economy that are currently influencing interest rate decisions.
The most important element of the report is likely to be the average hourly earnings section: anything below 2.0% could seriously damage the ‘Greenback’ while anything above 2.4% could kick the Dollar back into life.
Canadian Dollar
Canadian GDP data smashed economists’ forecasts yesterday sending the ‘Loonie’ rocketing higher across the board, including against the Pound.
The monthly January growth figure came in at 0.6%, double the 0.3% predicted beforehand. While the yearly score printed at 1.5%, comfortably higher than the median consensus of 1.1%. The Pound to Canadian Dollar exchange rate struck an 11-month low in reaction to the GDP report, which marked the fastest acceleration in growth since July 2013.
Australian Dollar
Sterling depreciated by around half a cent against the ‘Aussie’ yesterday as global risk sentiment continued to shine in the Australian Dollar’s favour.
The downbeat UK deficit numbers weighed on the Pound while Yellen’s dovish Fed monetary policy remarks earlier in the week continued to drive investors into riskier but more profitable asset classes such as the ‘Aussie’ Dollar.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled to a monthly low yesterday as investors remained cautious of sending Sterling higher ahead of the upcoming EU referendum.
Later this morning the latest UK PMI report is expected to show that manufacturing output increased from 50.8 to 51.2 in March but the mild uptick is unlikely to give Sterling a significant boost.
Data Released
09:30 GBP Markit UK PMI Manufacturing s.a. (MAR) Medium 51.2
10:00 EUR Euro-Zone Unemployment Rate (FEB) Medium 10.3%
13:30 USD Change in Nonfarm Payrolls (MAR) High 210k
13:30 USD Average Hourly Earnings (YoY) (MAR) Medium 2.2%
13:30 USD Unemployment Rate (MAR) High 4.9%
15:00 USD ISM Manufacturing (MAR) High 50.7