Sterling
Sterling performed surprisingly well yesterday, registering decent gains versus most of the majors in reaction to news of a weekend meeting between UK Prime Minister Theresa May and US President Donald Trump.
The Pound surged when the PM announced that she was meeting Trump over the weekend to discuss a new US trade deal that May claimed would ‘put UK interests and UK values first’. Although Trump’s rhetoric has focussed resoundingly on putting America first, the US leader has expressed a willingness to work with Britain – and it for this reason that traders were optimistic ahead of this weekend’s trade talks.
Euro
The Pound to Euro exchange rate rallied to three-week highs yesterday as traders expressed optimism that Britain may be able to clinch a positive trade deal with the US. Demand for the single currency was also hampered slightly by news that the German IFO business climate index dipped surprisingly from 111.0 to 109.8.
The most important ecostat to look out for today is this morning’s UK GDP report, which is predicted to see fourth quarter growth revised down from 0.6% to 0.5%. If the growth figure comes in lower-than-expected it could prompt a bout of Sterling selling, while a more sanguine number could potentially push GBP/EUR even higher. The Pound is currently around five cents stronger against the Euro than it was just 10 days ago.
US Dollar
Sterling followed most of the majors higher versus the US Dollar yesterday with investors appearing concerned that President Trump was focussing too heavily on protectionism and isolationism and not on his promises to boost the US economy through fiscal spending.
The ‘Greenback’ soared initially following the US election on hopes that Trump would come through on proposals to invest massively in infrastructure and manufacturing. So far the President’s actions have centred on protectionism, which analysts fear could harm the US economy, and there has been little clarity on fiscal policy. The longer that Trump avoids releasing spending plans, the tougher a time the US Dollar may have on the currency markets.
GBP/USD hit a six-week high yesterday but this could easily be reversed if Federal Reserve rate hike bets are buoyed by the kind of Trump that markets cheered back in November.
Canadian Dollar
The Pound drifted higher versus the Canadian Dollar yesterday as traders used news of a meeting between Theresa May and Donald Trump as a prompt to cash-in on profitable trades taken out earlier in the week. The commodity-sensitive ‘Loonie’ was also slightly impacted by a drop in oil prices, which came as a result of an increase in US oil inventories, which rose for the third week in a row.
Australian Dollar
A downbeat Australian inflation print helped the Pound rally by around two cents to strike a fortnightly high against the Australian Dollar yesterday. On a quarterly basis Australian CPI slowed from 0.7% to 0.5% and on an annual basis the consumer price index came in at 1.5%, which was slightly lower than forecasts of 1.6%. The disappointing results weighed on the ‘Aussie’ because it was seen to increase the chances of additional easing measures from the Reserve Bank of Australia.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate hit a two-week high yesterday, having appreciated by around 100 pips. However, GBP/NZD tumbled -80 pips later on in the evening in response to a New Zealand CPI report, which saw quarterly inflation print at 0.4% and annual inflation beat expectations of 1.2% with a score of 1.3%.
Data Released
09:30 GBP Gross Domestic Product (QoQ) (4Q A) Medium 0.5%
09:30 GBP Gross Domestic Product (YoY) (4Q A) High 2.1%