Sterling
The Pound plummeted versus the majors again on Friday in reaction to news that British consumers reined in their spending at the start of the year.
Compared to forecasts of +0.7%, the monthly UK retail sales (excluding auto fuels) index printed at -0.2% in January. The lowly figure came hot on the heels of a steeper contraction of -2.2% in December and a milder -0.1% dip in November, meaning the indicator has now fallen for three consecutive months for the first time since the year 2000. A combination of rising prices – especially at the petrol pumps – and slowing real wage growth were cited as probable causes for the downshift in consumer spending. The underlying trends appears to be negative, meaning that British GDP growth could easily moderate this year unless manufacturing and export orders manage to plug the gap.
Euro
The Pound to Euro exchange rate slid to a 10-day low on Friday as investors cut bets of a 2017 Bank of England interest rate following the disappointing UK retail sales report.
Consumer spending has been the primary driving force behind Britain’s exemplary economic growth rates in recent years. But 2016’s fastest growing economy may start to slow if inflation continues to eat into Britons’ purchasing power. UK CPI recently hit a two-and-a-half-year high and is tipped to spike at 2.8% over the next few years due to rising energy costs and the impact of a 15-20% depreciation of the Pound following the Brexit vote last June. The prospect of slower GDP growth was interpreted by most traders as a further sign that UK interest rates would remain on hold at rock-bottom levels through 2017.
US Dollar
‘Cable’ tanked by around -75 pips on Friday morning following the release of the underwhelming UK retail sales numbers. On an annual basis, sales volumes slowed to 2.6%.
The ‘Greenback’ remained supported by comments earlier in the week from Federal Reserve Chairwoman Janet Yellen suggesting that interest rates may be hiked in the near future. On the day, an index of US leading indicators printed at 0.6% for January, up from 0.5% last December.
However, the US Dollar was unable to press ahead comprehensively versus Sterling and GBP/USD remains within touching distance of key psychological resistance. Many investors are reluctant to get fully behind the ‘Greenback’ until President Trump elucidates on his plans for economy policy. This did not happen on Friday. Instead, reports surfaced suggesting that Trump is planning to mobilise 100,000 national guard troops to round up unauthorised immigrants.
Canadian Dollar
The Pound to Canadian Dollar exchange rate touched a 10-day low on Friday as a week of underperforming UK data culminated with an unexpected fall in retail sales. The ‘Loonie’, however, saw demand constrained by a -1.6% weekly drop in oil prices as US inventories surged and producers in nations uninvolved with production cuts ramped up production to take advantage of the initial jump in prices.
Australian Dollar
Sterling lost a little bit of ground versus the Australian Dollar following Friday’s soft British retail report.
The next key economic release for traders of GBP/AUD to keep an eye on is Tuesday morning’s minutes report from the Reserve Bank of Australia. The RBA left interest rates on hold at an historic low of 1.50% in February and analysts are split between those who believe the perceived over strength of the ‘Aussie’ Dollar will lead to a rate cut and those who deem the underlying growth prospects of the Australian economy stable enough to restart the bank’s hiking cycle. If the RBA gives any clues to future policy direction in its minutes report volatility can be expected in GBP/AUD.
New Zealand Dollar
The Pound softened a little bit against the New Zealand Dollar on Friday. Disappointing UK retail sales weighed on Sterling, while a double data miss negatively impacted the ‘Kiwi’ Dollar.
The New Zealand manufacturing PMI slowed from 54.2 to 51.6 while retail sales came in at 0.8%, confounding expectations of 1.0%. But we could see the ‘Kiwi’ rally if today’s dairy auction results show a rise in the value of the Antipodean nation’s most lucrative export.
Data Released
NZD Dairy Auction Avg. Winning Price MT (FEB 21) Medium $3537
15:00 EUR Euro-Zone Consumer Confidence (FEB A) Medium -4.9