Sterling
The Pound put in a disproportionately positive performance yesterday morning in reaction to news that UK house prices accelerated from 23% to 25% in January, beating forecasts of 22%. Sterling slowly gave back some of its gains during the afternoon, however, when hawkish Bank of England policymaker Kristin Forbes announced that she was leaving her post in June.
Demand for Sterling picked up earlier on in the week following comments from Forbes suggesting that rates could rise sooner-than-anticipated, so there is potential for the Pound to cede more ground if the remaining members of the rate-setting team maintain a more dovish approach to monetary policy.
Euro
The Pound to Euro exchange rate rallied by around half a cent yesterday to strike a weekly high as analysts continued to consider the future of the European project.
Fears that anti-EU far-right French leader Marine Le Pen could win this year’s Presidential elections have intensified following unexpected populist victories for Brexit and Trump last year. On top of that there is the issue of the third Greek bailout, which many analysts, the IMF included, believe to be unsustainable unless the Hellenic nation is granted relief on some of its existing debts. General elections in Germany and Holland this year also threaten to give nationalist parties a platform to grow, while Italy’s heavy debt burden is also a key concern.
In the short-term, the Brexit vote has had a clear negative impact on the Pound – GBP/EUR is currently around 14 cents weaker than it was on the evening of the vote – however, it has always been argued that the decision to break away from the European Union could potentially prove more disastrous for the Euro than the UK currency. Brexit has torn a hole in the European project and we will find out over the next few years whether that hole can be sewn over, or whether the fabric of the continent’s political and economic system will continue unravelling.
US Dollar
‘Cable’ struck a weekly high yesterday as traders grew tired of waiting for US President Donald Trump to detail his plans for fiscal spending.
The ‘Greenback’ rallied tremendously immediately after the US election due to hopes that Trump’s promises to invest ‘bigly’ in the US economy would drive job creation, wage growth and a series of rate hikes from the Federal Reserve. However, so far the President has taken a number of executive orders – most notably his unpopular and now revoked travel ban on all citizens from seven Muslim countries – and taken aim at a number of media outlets, trade allies and US businesses over Twitter.
The longer Trump leaves investors in the dark over his plans for economic policy, the more likely it will become that demand for the ‘Greenback’ wanes. Having said that, the US central bank does currently intend to raise interest rates three times in 2017, so any US Dollar corrections are unlikely to impact GBP/USD for long.
Canadian Dollar
Sterling jumped versus the Canadian Dollar at the London open yesterday but GBP/CAD gave back all of its gains by the end of the European session.
Data this afternoon is predicted to see the Canadian jobless rate remain at 6.9%, however, demand for the ‘Loonie’ could suffer slightly if net employment reduces by -5,000 as anticipated. Fluctuations in the oil market could also drive demand for the commodity-correlated Canadian currency.
Australian Dollar
The Pound to Australian Dollar exchange rate held firm through most of yesterday’s session. This morning sees the release of UK industrial production data, which markets expect to show a deceleration from 2.1% to 0.2% in December. If the figure matches the median consensus then Sterling could soften, however, a shock to the upside could breathe more life into the rejuvenated Pound.
New Zealand Dollar
Sterling soared against the New Zealand Dollar by a further cent yesterday, marking a huge five-cent appreciation over the last seven days. Demand for the high-beta ‘Kiwi’ remained low following the Reserve Bank of New Zealand’s dovish policy statement on Wednesday evening, which suggested that interest rates would not be raised this year.
Data Released
09:30 GBP Industrial Production (MoM) (DEC) Low 0.2%
13:30 CAD Unemployment Rate (JAN) High 6.9%
13:30 CAD Net Change in Employment (JAN) High -5.0k
15:00 USD U. of Michigan Confidence (FEB P) High 97.8