Sterling
The Pound performed relatively well over the Bank Holiday weekend versus some of the majors, but slipped against others.
The ‘Brexit’ debate continued as Standard & Poor’s affirmed Britain’s triple-A credit rating but noted a vote to leave the EU would likely hurt growth, make servicing the deficit more expensive and lead to a ratings downgrade. The Pound remained relatively unmoved by the remarks, as most analysts currently anticipate that Britons will elect to remain part of the 29-nation bloc during June’s referendum.
However, Sterling could lose ground today if UK manufacturing data disappoints. Markets are primed for a score of 51.2 but the PMI could come in weaker if it emerges that firms have cut back on expenditure in the run-up to the referendum. Indeed, a ‘Brexit’ could cause a lot of damage to the UK factory industry; economist Patrick Minford even went as far as to say that he supports ‘Brexit’ even though it would ‘mostly eliminate manufacturing’.
Euro
The Pound to Euro exchange rate fell by around -130 pips over the weekend in reaction to an unexpected surge in Eurozone GDP growth.
Eurostat reported that the currency bloc expanded 0.6% in the first quarter, up from 0.3% previously and much faster than market forecasts of 0.4%. The bumper growth report bolstered the appeal of the single currency and signified that, after eight years, the Eurozone has finally surpassed its pre-recession peak. Considering the dampened outlook for global growth in Q1 (Chinese slowdown, commodity price routs, refugee crisis, impending ‘Brexit’ vote, etc.) the robust GDP print was seen as a very encouraging result.
In other news, Eurozone unemployment fell to a five-year low and inflation declined from -0.1% to -0.2%.
US Dollar
‘Cable’ rallied to its highest level in almost five months on Monday as the headline US gauge of manufacturing output slowed unexpectedly from 51.8 to 50.8. Analysts noted that soft global growth prospects combined with the relatively strong US Dollar had made it difficult for the nation’s manufacturing exporters.
GBP/USD had entered the week on the front-foot after US traders saw consumer confidence tumble from 89.7 to 89.0 on Friday, disappointing the median consensus of 90.0. Technical trading patterns suggest that the Pound could be on track to gather momentum and swing higher versus the ‘Greenback’ over the next few days. However, Sterling’s nascent revival could be cut short if UK manufacturing data underwhelms this morning.
Canadian Dollar
On Friday it was reported that the Canadian economy contracted -0.1% on a monthly basis in February. The negative growth print, which marked the first decline in Canadian GDP for five months, featured sliding output in sectors such as manufacturing, mining, utilities and agriculture.
Sterling managed to appreciate by around a third of a cent following the report, but GBP/CAD did not rally further because markets do not expect the Bank of Canada (BOC) to respond to the soft figures with additional rate reductions.
Australian Dollar
The Pound to Australian Dollar touched a two-month high yesterday ahead of the Reserve Bank of Australia’s (RBA) latest minutes report. It was reported last week that Australian inflation slowed considerably from 1.7% to 1.3% in the first quarter, which led to a weakening of the ‘Aussie’ as bets of further RBA easing proliferated.
New Zealand Dollar
Sterling plunged lower by around two cents against the New Zealand Dollar over the weekend as investors geared up for today’s GlobalDairyTrade price auction and New Zealand’s unemployment report. Dairy prices rose at the latest auction and farmers are hoping for another price increase as Chinese buyers return to the market following an overhang.
However, the ‘Kiwi’ is liable to depreciate if the dairy auction goes badly. The New Zealand labour market is expected to see unemployment rise from 5.3% to 5.5% and this could also hurt the antipodean currency.
Data Released
09:30 GBP Markit UK PMI Manufacturing s.a. (APR) Medium 51.2
13:00 NZD Dairy Auction Whole Milk Powder MT (MAY 3) High $2,156
23:45 NZD Unemployment Rate (1Q) High 5.5%