Sterling
The Pound tumbled against most of the majors yesterday as new data added weight to the argument that rising inflation could detract from UK economic growth in 2017.
The latest report from the British Retail Consortium (BRC) showed that retail sales declined -0.2% in the three months to February, with non-food sales sliding for the first time in five years. The BRC warned that ‘the impact of inflation on consumer spending will add further intensity to an already fiercely competitive environment’. Halifax reported that house price growth struck a three-year low in February, suggesting that the squeeze on consumer spending power is starting to affect other areas of the economy.
The only good news on the day was that the Organisation for Economic Co-operation and Development (OECD) upgraded its 2017 UK GDP forecasts from 1.2% to 1.6%. The upgrade brings Britain inline with the Eurozone, which the OECD also expects to grow by 1.6% this year.
Euro
The Pound to Euro exchange rate skidded to a seven-week low yesterday as fears over the downward trend in consumer spending weighed on demand for Sterling.
The UK currency was also hurt by a startling revelation at the Bank of England. It emerged that new BoE Deputy Governor Charlotte Hogg did not disclose that her brother works in Barclays’ strategy team, which goes against Threadneedle Street’s code of conduct. Amid calls for the recently appointed Deputy Governor to resign, uncertainty clouded investors’ view of the Pound. Hogg had been seen as a policymaker with a slightly more hawkish inclination than the rest of the monetary policy team, and as such it would likely be seen as a bearish signal for the Pound if she were to leave the bank prematurely.
On the agenda today is UK Chancellor of the Exchequer Philip Hammond’s Spring Budget. Analysts anticipate a cautious approach with a possibility of additional austerity and tax hikes. This could easily weaken the appeal of Sterling. However, if Hammond were to launch new spending schemes to boost the economy then we could see the Pound put in a better performance.
US Dollar
Sterling also struck a seven-week low versus the US Dollar yesterday, sliding by around half a cent as negative sentiment put pressure on the UK currency. The ‘Greenback’, meanwhile, remained robust due to the recent shift in market expectations to suggest a Federal Reserve rate hike in March.
Provided this Friday’s US non-farm payrolls report doesn’t reveal any surprise downturns in the labour market it is probable that the US Dollar will maintain a strong performance against the Pound through the month of March.
Canadian Dollar
The Pound to Canadian Dollar exchange rate weakened by around a third of a cent yesterday and hit a weekly low as upbeat Canadian data supported the ‘Loonie’. The Canadian trade balance printed atC$807 million, the third month of surplus, thanks to a 0.5% uptick in exports. Although the report gave the North American currency a little bit of a boost it did little to materially alter Bank of Canada interest rate bets.
Australian Dollar
The Australian Dollar rallied by around half a cent versus the Pound yesterday following the decision of the Reserve Bank of Australia to leave interest rates on hold at 1.50%. Although the RBA’s policy statement referenced a lack of underlying wage growth pressure, sentiment improved slightly following the report due to remarks on the downside effects that low rates have been having on the Australian housing market. At this junction, the RBA is not expected to adjust rates anytime soon.
New Zealand Dollar
Curiously, the Pound managed to buck its market-wide trend of depreciation with a 30-pip rally against the New Zealand Dollar yesterday. It seems that a plunge in NZD/USD also dragged the Antipodean currency lower versus Sterling.
Data Released
13:15 USD ADP Employment Change (FEB) Medium 185k