Sterling
The Pound traded lower versus most of the majors yesterday as thin holiday trade accentuated market jitters regarding the UK’s 2017 economic prospects.
One of the biggest fears is that rising inflation pared with stagnant wage growth will leave consumers with less disposable income, which could seriously hamper the UK’s hugely important retail sector. Another fear is that Brexit uncertainty will prompt cutbacks in business investment and maybe even drive some firms out of the country.
Also weighing on Sterling this week is a ruling from the European Court of Justice, which places ratification of future EU trade deals in the hands of national parliaments, meaning that a single member state could veto Britain’s post-Brexit trade deal. Some traders fear that the ruling could make it impossible for the UK to strike a favourable arrangement.
Euro
Jittery traders sent the Pound to Euro exchange rate lower by around -70 pips to hit a two-week low yesterday as bearish UK economic bets weighed on Sterling.
In the Eurozone, Italy’s third largest lender Monte dei Paschi moved a step closer to a government bailout as the world’s oldest bank failed to raise €5 billion from private investors to plug a capital gap. Although the single currency has not suffered in response to the meltdown – Monte dei Paschi shares slid -7.5% yesterday to bring them down -85% on the year – there is a possibility that mainstream political parties could lose support as a result of the government bailout. This would raise the likelihood of an election victory for the anti-EU Five-Star Movement, which could undermine confidence in the Euro.
US Dollar
‘Cable’ tumbled three-quarters of a cent to strike a fresh five-week low yesterday as Sterling registered its 11th loss out of the last 13 days.
In addition to concerns surrounding Britain’s economic path through 2017, GBP/USD was also hurt by a higher-than-anticipated US third quarter GDP print. The latest revision showed that, contrary to previous estimates of 3.2%, the world’s largest economy posted annualised growth of 3.5% in Q3. The sturdy score boosted the US Dollar and made up for a soft durable goods report, which came in at -4.6%, marginally better than forecasts of -4.8%.
Canadian Dollar
The Pound to Canadian Dollar exchange rate softened a little bit yesterday despite data showing that Canadian inflation slowed from 1.5% to 1.2% during November. The disappointing Canadian CPI report weighed against the ‘Loonie’, but sentiment was improved by a surprise 1.1% increase in Canadian retail sales, which outperformed expectations of 0.3%.
This afternoon sees the release of October’s Canadian GDP report, which could give GBP/CAD a little bit of a boost if it prints inline with economists’’ forecasts of 0.0%.
Australian Dollar
Sterling started on the front foot versus the Australian Dollar yesterday, as risk aversion related to the Federal Reserve’s hawkish rate outlook continued to depress demand for the high-beta ‘Aussie’. However, Sterling’s uncertain 2017 prospects meant that GBP/AUD had retreated right back to where it started by the end of the London session.
New Zealand Dollar
The Pound suffered losses of around -70 pips versus the New Zealand Dollar yesterday as thin holiday trading positions exacerbated concerns over the health of the British economy in the New Year.
Data Released
09:30 GBP Gross Domestic Product (YoY) (3Q F) Medium 2.3%
13:30 CAD Gross Domestic Product (MoM) (OCT) Medium 0.0%
15:00 USD U. of Michigan Confidence (DEC F) Medium 98