Sterling
The Pound struggled against most of the majors yesterday as investors continued digesting data released earlier in the week showing that inflation rose slightly slower-than-anticipated in January and that real wage growth hit a two-year low in the fourth quarter of 2016.
The only major UK ecostat due for release today is the January retail sales report, which analysts predict will see a rebound in the monthly index. Sales volumes contracted -2.0% in December but we could see a little spike in demand for Sterling if January’s print matches forecasts of a 0.7% expansion. If the figure disappoints then the Pound is liable to depreciate as this could be taken as a signal that slowing wage growth is already beginning to restrict consumer spending patterns.
Euro
The Pound to Euro exchange rate tumbled by around half a cent yesterday despite a fairly dovish message in the European Central Bank’s latest minutes report.
The minutes from the ECB’s January meeting showed little desire to start tightening policy anytime soon, with the bank keen to remain patient and provide a ‘steady hand’ to maintain stability during a time of intense unpredictability. Policymakers also noted they had not seen any clear signs that higher energy prices had translated into second-round rises in broader inflationary pressures. Strangely, the single currency was not hampered by the dovish statement and went on to rally throughout the day.
US Dollar
Sterling fluctuated close to technical resistance at 1.25 yesterday, with ‘Cable’ ultimately closing for the day below that key level. The one key US data release yesterday showed that manufacturing activity in Philadelphia is booming at its fastest rate for 33 years at the start of 2017.
Demand for the Pound remained mildly soft following the week’s data stream, however, investors appeared reluctant to drive the US Dollar to any major gains while President Trump’s plans for economic policy remain under wraps. If Trump were to follow through on his campaign pledge to invest heavily in infrastructure then we could see GBP/USD start depreciating towards 1.20. Indeed, many investment banks predict that we could see the Pound to US Dollar exchange rate trade below 1.20 by the end of the year.
Canadian Dollar
The Pound to Canadian Dollar exchange rate traded within a tight half-cent range yesterday. Oil prices dipped -1% on the day, but crude could restart its rally of late 2016 if dark mutterings of further production cuts come to fruition. Sources suggest that OPEC could begin to apply deeper cuts to production levels if global oil inventories do not sink to a targeted level.
Australian Dollar
Sterling fared better against the Antipodeans, registering a half-cent daily gain versus the Australian Dollar. One of the reasons for the drop off in demand for the ‘Aussie’ could be the fact that the details of the most recent Australian jobs report are less optimistic than the headline reading. Australian unemployment dipped unexpectedly from 5.8% to 5.7% in January, but full time employment actually declined by -44,800 over the month. It was a surge of 58,300 new part time roles that drove the headline jobless index lower. However, part time jobs are usually less lucrative than full time work and this shift could lead to lower consumer spending in future months.
New Zealand Dollar
The Pound remained fairly flat versus the New Zealand Dollar yesterday. Sterling initially outperformed the ‘Kiwi’ by around half a cent but GBP/NZD settled back down as US stock markets bolstered global risk appetite.
Data Released
09:30 GBP Retail Sales (MoM) (JAN) Low 0.7%
09:30 GBP Retail Sales (YoY) (JAN) Medium 3.9%