Sterling
Sterling put in another decent performance yesterday thanks to stronger-than-anticipated UK economic data. Confounding expectations of 0.5%, the latest GDP report showed that the UK economy accelerated at a pace of 0.6% in the fourth quarter of 2016. It was Britain’s consumers, bolstered by tepid inflation and low borrowing costs, that drove the economy forward.
The sanguine report proves that thus far the Brexit vote has had only a limited impact on the UK’s economic performance. However, analysts warn that Sterling’s -15% depreciation last year will start to drive price pressures higher this year, which in turn could eat into Britons’ purchasing power and hamper GDP growth. British inflation recently jumped to a two-year high of 1.6%, which supports that argument, but forecasts cannot be taken for granted. After all, the majority of the world’s most prestigious financial institutions predicted that Britain would be in a recession by now if Britons voted for Brexit!
Euro
The Pound to Euro exchange rate touched a new three-week high yesterday as British sentiment improved following the higher-than-anticipated UK Q4 GDP print.
Although traders are concerned that a spike in UK inflation could weigh on growth in 2017, the expected build up of price pressures is liable to boost Bank of England rate hike expectations. The single currency, on the other hand, is set to be dampened by the European Central Bank’s quantitative easing scheme for the duration of the year – and possibly further. Indeed, the IMF released a review of the Eurozone economy yesterday, in which it praised the ECB for its commitment to keeping monetary policy accommodative.
US Dollar
‘Cable’ briefly peaked at a new six-week high yesterday morning, however, Sterling was unable to maintain its gains as profit taking stances dragged GBP/USD lower.
Yesterday’s US data saw service sector output beat expectations of 53.9 with a score of 55.1 and jobless claims rise by 259,000, compared to estimates of 245,000. The numbers had little impact on demand for the ‘Greenback’. However, we could see US Dollar volatility this afternoon when the US fourth quarter GDP report is released. Traders are anticipating a drop-off in annualised output from 3.5% to 2.2%, which could give Sterling the impetus to rally.
The Pound could also gain support over the weekend if the UK Prime Minister is successful in building a stronger ‘special relationship’ with US President Donald Trump. Channelling the sentiments of a tabloid dating expert, the PM voiced optimism ahead of the meeting, stating ‘opposites attract’.
Canadian Dollar
Sterling softened ever-so-slightly versus the Canadian Dollar yesterday as rising rude oil prices drove demand for the commodity-sensitive ‘Loonie’. Crude struck a three-week high as production cuts, agreed late last year between OPEC and a number of major non-OPEC nations, started to take effect.
Australian Dollar
The Pound to Australian Dollar exchange rate flatlined for most of yesterday’s session in the region of a three-week high. Sterling is currently on a strong run of six appreciations in the last nine days versus the ‘Aussie’ and is around eight cents stronger than it was at the start of that run.
New Zealand Dollar
GBP/NZD strengthened by around half a cent yesterday with demand for the Pound buoyed by the better-than-expected UK GDP figures.
Data Released
13:30 USD Gross Domestic Product (Annualized) (4Q A) High 2.2%
13:30 USD Durable Goods Orders (DEC P) High 2.6%