Sterling
Construction data on Friday showed that British construction output shrunk -1.1% in the first quarter of the year. House building was the only bright spot, with maintenance, infrastructure and factory projects suffering severe contractions. Markets were displeased by the latest batch of negative domestic news ahead of the EU referendum in June.
Nevertheless, demand for the Pound was not significantly impacted because construction only accounts for around 7% of UK GDP. Sterling has performed fairly sturdily in recent weeks because analysts reckon there is only a 30% chance of a ‘Brexit’ next month. Markets are optimistic that UK economic performance will ramp up after the referendum, so long as Britons vote to remain inside the 29-nation bloc.
Euro
The Pound to Euro exchange rate grew by around a quarter of a cent on Friday in response to news that first quarter Eurozone GDP was revised lower. The currency bloc had initially reported economic growth of 0.6% in Q1 but the latest estimate put the figure at 0.5% and the single currency softened slightly in response to this.
Often revisions to Eurozone figures follow similar changes in trajectory to German data prints. However, on this occasion the bloc’s largest economy benefitted from a GDP upgrade, even as Eurozone growth was downgraded. The German economy is now thought to have expanded 0.7% in the first three months of the year, making it the fastest growing G7 economy during Q1.
US Dollar
Sterling fell sharply by around a cent against the US Dollar on Friday as a string of American ecostats came in stronger-than-anticipated.
Compared to calls for a 0.8% uptick, US retail sales jumped by a yearly high of 1.3%, while business inventories came in twice as strongly as forecast with a print of 0.4%. Additionally, the University of Michigan’s highly regarded investor confidence index came in at 95.8, massively outperforming predictions of 89.5 and marking the highest score since June 2015.
Despite the upbeat US data, analysts are still fairly confident that the Federal Reserve will not opt to raise interest rates next month. The consensus is that, because the Fed’s meeting takes place before the ‘Brexit’ vote, policymakers will err on the side of caution.
Canadian Dollar
The Pound to Canadian Dollar exchange rate strengthened by around half a cent on Friday even though data showed that the number of oil rigs in operation in the US tumbled last week.
In what was the eighth week of oil rig closures, the Baker Hughes rig count showed that a further 9 rigs shut down operations last week, bringing the total down to a six-year low of 406. The results helped allay fears of the current supply glut worsening but they failed to lift crude prices and subsequently the commodity-sensitive ‘Loonie’ struggled to attract buyers.
Australian Dollar
Sterling ticked slightly higher versus the Australian Dollar over the weekend, rising a third of a cent, as underwhelming Chinese data undercut confidence in the ‘Aussie’.
Risk sentiment in the Asia Pacific region was hit by news that Chinese industrial production slowed from 6.8% to 6.0% and Chinese retail sales decelerated from 10.5% to 10.1% in April. The disappointing numbers negatively impacted the ‘Aussie’ because China is the largest buyer of Australian produce and exports.
New Zealand Dollar
The New Zealand Dollar followed its Antipodean counterpart, the ‘Aussie’, lower over the weekend in response to the soft Chinese industrial and retail prints. The ‘Kiwi’ benefitted from an upbeat domestic service sector score of 57.7, which outpaced the previous result of 55.1, but it was not enough to prevent GBP/NZD registering a 50-pip gain.
Data Released
14:00 CAD Existing Home Sales (MoM) (APR) Medium 1.5%