Sterling
Despite a neutral message from Bank of England Governor Mark Carney the Pound managed to rally versus most of the majors yesterday ahead of this morning’s UK GDP report.
The BoE Chief kept his cards close to his chest, suggesting that interest rates may move ’faster or slower’ than markets currently expect. The evasive responses regarding future rate policy failed to knock Sterling exchange rates – perhaps because some investors are more convinced than the bank that underlying inflationary pressures (not just the effect of Sterling’s 2016 depreciation) are building in the UK economy.
This morning’s fourth quarter UK GDP revision is tipped to see quarterly growth remain at 0.6% and annualised growth remain at 2.2%. However, sturdy manufacturing performance could drive the GDP index higher and this could bolster the appeal of the Pound.
Euro
The Pound to Euro exchange rate rallied 50 pips to strike a two-month high yesterday as fears of a Marine Le Pen victory at this year’s French Presidential elections outweighed robust Eurozone data.
The latest private sector PMI reports in the currency bloc showed activity rising to a 70-month high in February, helped by a nine-year high sub index for job creation.
However, demand for the single currency was compromised by news of an opinion poll in France suggesting that anti-EU National Front candidate Marine Le Pen has halved the gap between herself and centrist frontrunner Emmanuel Macron. Investors are concerned that, like the Brexit and Trump victories, the French election could throw up another nationalist populist surprise. If Le Pen were to become French President the Euro would likely tank on fears of its second largest economy exiting the bloc.
US Dollar
The Pound ticked slightly higher versus the US Dollar yesterday, rising during the afternoon following an unexpectedly slow rise in US private sector activity.
The US services PMI dropped from 55.6 to 53.9, missing forecasts of 55.8, while the manufacturing index cooled from 55.0 to 54.3, disappointing expectations of 55.2. The underperforming ecostats weighed on the ‘Greenback’ as some investors cut their bets of a near-term rate rise from the Federal Reserve. Nevertheless the Fed is currently forecasting three rate hikes in 2017 while the BoE is not expected to even raise rates once.
Canadian Dollar
Sterling strengthened by around 60 pips yesterday to strike a weekly high against the Canadian Dollar. The Pound was buoyed by a surprisingly positive UK trade report, which showed the government achieved its largest January surplus for 17 years last month thanks to a bumper month of tax receipts. The encouraging £9.4 billion surplus means that Britain is now on course to meet its deficit target for the 2016⁄17 financial year.
Australian Dollar
The Pound to Australian Dollar exchange rate rallied by over a cent just before the close of the London session, perhaps suggesting that some traders are confident of a positive fourth quarter UK GDP report this morning. The quarterly growth figure is tipped to remain at 0.6%, but we could see a little bit of upward momentum behind Sterling if the growth report does indeed beat the median market forecast.
New Zealand Dollar
Sterling appreciated slightly versus the New Zealand Dollar yesterday as Antipodean traders sold the ‘Kiwi’ in reaction to a -3.2% fall in the price of dairy products at the latest Global Dairy Trade auction. Dairy is New Zealand’s most lucrative export and subsequently fluctuations in price tend to have a reciprocal effect on demand for the ‘Kiwi’ Dollar.
Data Released
09:30 GBP Gross Domestic Product (QoQ) (4Q P) Medium 0.6%
09:30 GBP Gross Domestic Product (YoY) (4Q P) High 2.2%
10:00 EUR Euro-Zone Consumer Price Index (MoM) (JAN) High -0.8%
19:00 USD FOMC Meeting Minutes (FEB 01) High