Sterling
The Pound dipped versus most of the majors yesterday in response to some disappointing data concerning British consumer credit. Ordinarily, the consumer credit index is unable to make much of a difference to the currency market. But on this occasion an unexpected drop from £1.9 billion to £1.0 billion was seen as a potential harbinger of things to come.
The UK economy has performed surprisingly well since the Brexit vote, largely thanks to the resilience of consumers. However, inflation is on the rise and analysts fear this could hamper consumer spending trends and weaken GDP growth in 2017. It seems that the Pound dropped following the consumer credit data because investors considered the lower-than-anticipated print a sign that British households are already preparing to rein in spending.
Euro
A raft of upbeat European ecostats helped the Euro rally by around a third of a cent versus Sterling yesterday.
Eurozone unemployment tumbled unexpectedly from 9.8% to a seven-year low of 9.6%, economic growth rose from 0.4% to 0.5% and the consumer price index jumped from 1.1% to a four-year high of 1.8%. The impressive set of figures helped ease concerns that the European Central Bank’s ultra-loose monetary policy stance was not working its way through the real economy. The single currency rallied in response to the reports and we could see the Euro strengthen further in the future if economic data continues improving in this vein.
US Dollar
The Pound initially tumbled versus the US Dollar in reaction to the unsettling UK consumer credit report. However, the ‘Greenback’ fell out of favour with investors later in the morning in response to remarks from a member of Donald Trump’s administration.
Trump’s top trade adviser Peter Navarro caused shockwaves across financial markets by accusing Germany of using a ‘grossly undervalued’ Euro to gain an unfair advantage over the US and its EU partners. The acerbic remarks were seen to suggest that the US would be focussing on currency as part of its strategy for renegotiating trade deals. Although Trump’s reflationary campaign policy pledges are liable to boost the US Dollar – by pushing domestic wages higher, driving CPI and prompting monetary tightening from the Federal Reserve – the rhetoric employed by his administration suggests the US government may pursue measures to directly weaken the ‘Greenback’ in order boost exports.
The fear of such measures – initially evoked by Trump’s comment a fortnight ago that the US Dollar was ‘too strong’ against the Chinese Yuan – helped to depress demand for the ‘Greenback’ yesterday and allowed GBP/USD to register an 80-pip daily gain.
The Fed is tipped by 96% of market respondents to leave interest rates on hold at 0.75% this afternoon and we could see the US Dollar suffer further falls if the US central bank takes a more dovish approach to policy in 2017. However, if the Fed’s rhetoric reflects a strong desire to push ahead with further rate hikes this year then we could easily see ‘Cable’ lose out.
Canadian Dollar
The Sterling to Canadian Dollar exchange rate lost ground initially yesterday as UK consumer credit started to dry up and Canadian GDP beat market expectations.
The Canadian economy reported growth of 0.4% in November, up from a -0.3% contraction in October and mildly better than forecasts of 0.3%. The sturdy score took annualised growth up from 1.5% to 1.6%. However, there are fears that Trump’s new trade arrangements could lead to border taxes, which the National Bank of Financial Markets said could slice -1.5% off Canada’s economy in 2017.
Australian Dollar
The Pound stumbled by around a cent but then recovered to register a daily gain versus the Australian Dollar yesterday. The main event for the Pound today is this morning’s manufacturing report, which is tipped to see output dip slightly from 56.1 to 55.9. If the report beats the consensus then Sterling could start to rally, however, if the print comes in lower there is potential for the ‘Aussie’ to gain.
New Zealand Dollar
GBP/NZD yo-yoed yesterday before settling for a daily gain of 70 pips in the evening following a massive miss in the New Zealand labour market report. The headline unemployment rate jumped from 4.9% to 5.2%, confounding estimates of 4.8%, which reduced the appeal of the ‘Kiwi’ Dollar.
Data Released
09:30 GBP Markit UK PMI Manufacturing SA (JAN) Medium 55.9
15:00 USD ISM Manufacturing (JAN) High 55
19:00 USD Federal Open Market Committee Rate Decision (FEB 01) High 0.75%