Sterling
UK GDP decelerated from 0.7% to 0.3% in the first quarter of 2017, it was reported on Friday. This marked the slowest growth rate for a year. The result was lower than the 0.4% that markets had anticipated and was largely driven by slowdowns in consumer-facing sectors, reflecting the recent surge in inflation. Analysts warned that falling real wages could continue to hamper household spending patterns over the next 12 months, consequently leading to a period of muted GDP growth.
The Pound, however, remained in good form following the underwhelming growth report. Sterling racked up gains versus most of the majors, even managing to strike a few fresh multi-month highs.
Euro
The Pound to Euro exchange rate did initially sustain losses in reaction to the Q1 UK GDP report, falling by around half a cent in the morning. However, demand for GBP/EUR picked up again in the afternoon and Sterling clawed back its initial losses.
In the Eurozone data showed that consumer prices jumped from 1.5% to 1.9% in April, beating estimates of 1.8%. It wouldn’t have been surprising to see the single currency strengthen on the figures, because it was soft inflation expectations that were cited by European Central Bank President Mario Draghi a day earlier as reason not to tighten monetary policy. But it seems that on this occasion traders were not convinced that the inflation jump was substantial enough to alter the ECB’s dovish outlook.
US Dollar
‘Cable’ appreciated by around 70 pips on Friday to strike its highest peak since September 2016 as US GDP came in unexpectedly weak.
After registering annual growth of 2.1% in the fourth quarter of last year, the US economy slowed to 0.7% in the first three months of 2017. The dire report underwhelmed expectations of 1.0% and represented the worst growth figure since 2014. If calculated on a quarterly basis, the US economy would have grown by less than 0.2% between January and March.
On Monday sentiment towards the ‘Greenback’ was hampered by another underwhelming ecostat: the US ISM manufacturing index for April came in at 54.8, down from 57.2 previously and markedly lower than forecasts of 56.5. It will be interesting to see whether today’s UK manufacturing report has an impact on GBP/USD trading. The British PMI is tipped to show a slender deceleration, from 54.2 to 54.0, but there’s always the possibility that the Pound’s relative weakness gave UK exports a competitive edge. A better-than-anticipated result for April could fan the flames of GBP/USD’s uptrend.
Canadian Dollar
Before the Bank Holiday weekend, Sterling struck another multi-month high versus the Canadian Dollar. Sliding oil prices and fears that Donald Trump’s protectionist policy plans could impact Canadian export performances have driven the ‘Loonie’ to its weakest level against the Pound since last June’s Brexit referendum.
Australian Dollar
Sterling struck a fresh seven-month high versus the Australian Dollar on Friday afternoon, however, GBP/AUD bounced lower yesterday as profit takers took advantage of the strong exchange rate.
The ‘Aussie’ was also boosted by a robust 59.2 print in the April Australian manufacturing PMI, which improved upon March’s score of 57.5 and marked a consecutive ninth month of expansion in the sector. Except for another extraordinarily strong reading in February, April’s score was the highest since May 2002. Still, the Pound to Australian Dollar exchange rate remains close to peaks not seen since September of last year.
New Zealand Dollar
The Pound struck its highest level against the New Zeland Dollar since July 2016 on Friday, however, profit taking took GBP/NZD lower by around two cents on Monday. One report to look out for today is the first quarter New Zealand unemployment report, which could boost the appeal of the ‘Kiwi’ Dollar if it drops from 5.2% to 5.1% as expected. Also on the agenda is the latest Global Dairy Trade auction, which could weaken the ‘Kiwi’ if it comes in softly but could bolster the New Zealand Dollar if it impresses.
Data Released
09:30 GBP Markit UK PMI Manufacturing SA (APR) Medium 54
10:00 EUR Euro-Zone Unemployment Rate (MAR) Medium 9.4%
23:45 NZD Unemployment Rate (1Q) High 5.1%