Sterling
Following last week’s disappointing performance the Pound continued to slide at the beginning of this week’s session. Worries over Britain’s ability to maintain the sanguine growth rates of last year, now that consumer prices are rising, weighed on demand for Sterling, while Brexit issues remain another key concern.
Prime Minister Theresa May’s spokesperson said yesterday that she had chosen not to offer parliament a proper veto over her eventual Brexit deal in case it incentivises EU leaders to offer Britain a bad deal. May’s spokesperson claimed that if MPs were given more say it would allow European leaders to attempt to scupper Brexit by repeatedly offering bad deals, which they know would not make it through a parliamentary vote.
Uncertainty over how Britain’s post-Brexit relationship with Europe will look is unlikely be banished anytime soon but the feeling among markets at the moment is that the less barriers to Brexit, the better. It seems that earlier hopes of the referendum result being reversed have since dried up.
Euro
The Pound to Euro exchange rate slumped to a fresh six-week low yesterday morning, however, Sterling managed to claw back some of its losses due to fears surrounding the French Presidential election.
The prospect of far-right anti-EU National Front leader Marine Le Pen progressing in the election was seen to increase yesterday when former Prime Minister Alain Juppe said he would not stand in the vote. Juppe was seen as having a better chance of beating Le Pen than Republican candidate Francois Fillon, who Juppe criticised for not stepping down after allegations of misusing public funds tarnished his name. Juppe’s decision was seen as negative for the single currency because it means that unpopular Fillon will battle it out with Le Pen to progress through the second round of the vote. Polling suggests that Juppe would have comfortably beaten Le Pen – who aims to take the currency bloc’s second largest economy out of the Eurozone.
US Dollar
‘Cable’ remained close to six-week lows yesterday as Federal Reserve tightening bets mounted.
At the start of the week markets estimated an 80% chance of a 25 basis point rate hike in March and by the end of the day the CME futures tool indicated an 86% possibility of tighter policy this month. The uptick in bets followed a better-than-anticipated factory orders print of 1.2%, compared to calls for 1.0%. The recent shift in Fed rhetoric means that the ‘Greenback’ could hold onto its recent gains so long as the US central bank does live up to expectations this month. Friday’s highly anticipated US non-farm payrolls report is the next key event to look out for: a robust print ought to cement rate hike bets, while a lowly number could lead to a correction in favour of GBP/USD.
Canadian Dollar
The Pound to Canadian Dollar exchange rate slid by around -40 pips yesterday as negative Sterling sentiment dominated currency markets. The commodity-sensitive ‘Loonie’ was lucky to rally as the value of its most lucrative export, crude oil, tumbled in response to concerns that falling demand from Europe and rising shale oil production in the US could nullify the effect of last year’s vaunted OPEC production cut deal.
Australian Dollar
Sterling ceded around -60 pips to the Australian Dollar yesterday. It seems that, having sold the commodity bloc fairly heavily late last week on signs of rising Fed rate hike prospects, traders opted to lock in profit yesterday, which pushed the high-beta ‘Aussie’ higher ahead of a policy decision from the Reserve Bank of Australia.
New Zealand Dollar
The New Zealand Dollar also managed to register gains versus the Pound yesterday due to a bout of profit taking, which followed last week’s sell off in perceived riskier assets like the ‘Kiwi’.
Data Released
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (4Q F) Medium 1.7%
13:30 USD Trade Balance (JAN) Medium -$48.0b