Sterling
The Pound put in a sturdy performance on Friday as investors reacted fairly well to data showing that the UK economy grew 0.5% in the third quarter. The upbeat report shows that fears of an immediate recession following the ‘Brexit’ vote were unfounded, however, analysts warned that the impact of higher inflation, due to the weakened Pound, could easily squeeze household spending power over the next 12 months.
When broken down, the GDP report indicated that the dominant services industry grew 0.8%, while industrial production shrank -0.5% and construction output cooled -1.1%. The UK’s heavy reliance on service sector spending corroborates concerns that falling real wages could have a substantial impact on economic growth.
Euro
The Pound to Euro exchange rate traded in a choppy one-cent range on Friday close to two-month highs, ultimately ending the day very close to levels where it began.
The single currency found solace from rumours that the European Central Bank is planning to delay announcing an extension to its expansive quantitative easing scheme until January. However, Sterling fought back, buoyed by the sanguine third quarter GDP report, which showed quarterly growth of 0.5% and an annualised expansion of 2.3%.
ECB President Mario Draghi is due to speak later this afternoon and, if he opts to drop any policy hints, we may see some volatility in GBP/EUR. If the ECB Chief were to talk up the possibility of additional stimulus before the end of the year then the Euro is liable to depreciate, however, if Draghi confirms rumours of a delay then the single currency stands to gain.
US Dollar
Sterling rallied by around a quarter of a cent versus the US Dollar on Friday as global markets punished the US for unleashing the vicious retail phenomenon that is Black Friday on the rest of the world thin trading volumes due to the Thanksgiving Holiday shutdown in America led to heightened volatility.
The Pound was boosted by the robust third quarter GDP report, however, the ‘Greenback’ does appear to have the upper hand when it comes to monetary policy implications in the foreseeable future. Whereas the Bank of England recently cut interest rates to a record low of 0.25%, the Federal Reserve is, according to market futures rates, 94% likely to hike rates next month. The prospect of President-elect Donald Trump imposing a number of reflationary policies means the Fed may well opt to prevent the US economy overheating by pursuing a series of subsequent rate rises over the next few years.
Canadian Dollar
Despite hopes that OPEC members will agree on a deal to curb output and drive oil prices higher later this week, the Pound managed to rally by around a cent against the Canadian Dollar on Friday. GBP/CAD hit a fortnightly high over the weekend, however, there is potential for the commodity-sensitive ‘Loonie’ to rally back if the OPEC meeting proves successful.
Australian Dollar
Sterling stumbled lower by around a third of a cent on Friday, despite the sanguine UK Q3 GDP report. It appears that the ‘Aussie’ was boosted by news of an uptick in Japanese CPI from -0.5% to +0.1%, which bolstered sentiment in the Asia-Pacific region.
It also seems that, having witnessed large deprecations versus the US Dollar since Trump’s victory, the Australian Dollar was propped up by profit taking stances during the US Thanksgiving Holiday.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled half a cent on Friday as the risk-sensitive ‘Kiwi’ benefitted from investors locking in profit following the seven-week high GBP/NZD struck on Thursday.
Data Released
14:00 EUR ECB’s Draghi Speaks at European Parliament in Brussels Medium