Sterling
The Pound weakened versus most of its major currency peers on Friday in reaction to some disappointing economic data. January’s services PMI report showed that the dominant services industry decelerated from 56.2 to 54.5 as business and employment sub-indexes cooled. Traders had expected a higher reading of 55.8.
The unexpected slowdown managed to negatively impact pretty much all the Sterling crosses, due to the fact that tertiary industries account for over 70% of British economic output. The Bank of England recently upped its growth forecasts but showed no signs of urgency in terms of tightening monetary policy to combat rising inflation. This means that it would likely take a significant acceleration of economic growth, job creation and consumer prices to prompt a shift in BoE outlook – and Friday’s PMI result certainly didn’t tick any of those boxes.
Euro
The Pound to Euro exchange rate slid by over half a cent on Friday following the morning’s unexpectedly meek UK services report. Demand for the single currency was hampered by a softer-than-anticipated Eurozone retail sales index of 1.1%, down from 2.5% previously, but the European consumer print was not as influential as the UK service sector readout.
Over the weekend France’s far-right leader Marine Le Pen launched her election bid to thousands of French citizens by vowing to fight globalisation. If elected the controversial National Front candidate would take France out of the Eurozone, hold a referendum on EU membership and impose taxes on imports. Although polls suggest Le Pen will not make it to the final round of votes investors are concerned that pollsters, who failed to predict victories for Brexit and Trump, could be underplaying the possibility of another populist shock. If Le Pen remains in the hat after the second round then we could see downward pressure on the single currency.
US Dollar
‘Cable’ softened by around a third of a cent on Friday as disappointing domestic data weighed on the Pound. However, Federal Reserve rate hike sentiment was damaged later in the day, which cushioned Sterling’s losses.
The January US non-farm payroll report printed much higher-than-expected, at 227,000 compared to forecasts of 180,000. The robust rise in job creation was not enough to lift the ‘Greenback’, however, because wage growth was seen to have cooled from 2.8% to 2.5%. Markets reacted to the surprisingly soft wage figures by cutting predictions that the Fed would raise interest rates in March. Prior to the labour figures the futures markets predicted a 20% chance of a March hike, whereas afterwards expectations dropped to 12%.
Canadian Dollar
Sterling tumbled by around half a cent versus the Canadian Dollar on Friday.
GBP/CAD slid initially following the morning’s unexpectedly soft UK service sector numbers but demand for the Pound increased slightly ahead of the highly influential US NFP report. The Pound then succumbed to further losses versus the ‘Loonie’ when lower-than-anticipated US wage growth figures tarnished March Fed rate hike bets, and subsequently improved the outlook for risk currencies such as the Canadian Dollar.
Australian Dollar
The Sterling to Australian Dollar exchange rate depreciated by around -75 pips over the weekend thanks to disappointingly soft UK service sector figures. Data at the start of this week’s session showed that Australian retail sales, excluding inflation, rebounded from a -0.1% contraction in Q3 to rally +0.9% in the fourth quarter. However, this data was unable to give the ‘Aussie’ an additional lift.
New Zealand Dollar
The Pound tumbled lower by around a cent-and-a-half against the New Zealand Dollar on Friday. However, cyclical data suggests that commodity-sensitive currencies such as the ‘Kiwi’ and the ‘Aussie’ often give back gains made in January during the month of February. So there is hope yet for another leg higher in GBP/NZD.
Data Released
09:30 EUR Euro-Zone Sentix Investor Confidence (FEB) Medium 16.8
14:00 EUR ECB President Draghi Speaks to Parliament in Brussels Medium