Sterling
An unexpected downgrade to first quarter growth weighed on Sterling yesterday, prompting mild losses against most of the majors.
The Office for National Statistics’ (ONS) latest report saw quarterly growth revised down from 0.3% to 0.2%. When looked at in closer detail the economy only eked out an expansion of 0.18%, which is the weakest figure since the fourth quarter of 2012. Traders were particularly concerned with a 1.4% fall in net exports because the Pound’s slide had been expected to hand the export sector a little bit of a boost. Sluggish household spending growth of just 0.3% – a two-year low – also contributed to the underwhelming score, although rising inflation meant that analysts were less surprised by this element of the report.
Euro
Sterling drifted lower against the Euro yesterday as disappointing UK growth figures reduced demand for the Pound. GBP/EUR is currently trading close to its lowest level for 50 days and there is nothing on the economic calendar over the next few days that looks likely to bring about a turnaround in fortunes for the British currency.
Although recent inflation indicators have shown faster rises in price pressures in the UK than in the Eurozone, neither the Bank of England or the European Central Bank appear to have much appetite for higher rates at this juncture. This means we could see a period of relative stability in the pair.
US Dollar
The Pound spiked above key resistance against the US Dollar yesterday morning, however, ‘Cable’ slid lower by around half a cent when the UK GDP numbers were released.
British growth was revised lower unexpectedly, with quarterly GDP taken down from 0.3% to 0.2% and year-on-year growth downgraded from 2.1% to 2.0%. Data this afternoon is anticipated to show that the US economy expanded at an annualised rate of 0.9% in the first three months of the year, which, in light of recent comments from Federal Reserve policymakers, may not be deemed strong enough for a tightening of policy in June.
Market pricing currently suggests an 88% chance of a rate hike next month, but the Fed’s latest minutes report showed that officials were looking for proof that the recent slowdown in US economic activity was not the start of a longer term trend. This means we could potentially see Sterling strengthen versus the ‘Greenback’ if the US GDP report disappoints.
Canadian Dollar
The Pound to Canadian Dollar exchange rate rebounded from a monthly low yesterday afternoon to appreciate by around half a cent as markets reacted to the latest news related to the global oil industry.
Crude plunged 4% following an announcement from OPEC that it would be extending its production cuts by an additional nine months until March 2018. On this surface this would look like good news for oil prices, however, traders were disappointed that the oil cartel didn’t deepen the production cuts, which currently stand at around 1.8 million barrels per day. The fear is that US shale will plug the gaps left by OPEC and therefore negate any positive outcome from the programme.
Australian Dollar
With little clear fundamental drivers, Sterling managed to appreciate by around half a cent versus the Australian Dollar yesterday. Whereas most of the Pound’s major currency peers took advantage of the underwhelming Q1 UK GDP print yesterday, the ‘Aussie’ failed to rally on the soft result.
New Zealand Dollar
GBP/NZD traded flatly for most of yesterday’s session as downbeat UK growth figures compromised demand for the Pound. Sterling changed hands in the region of a one-month low for most of the day.
Data Released
13:30 USD Gross Domestic Product (Annualized) (1Q S) High 0.9%
13:30 USD Durable Goods Orders (APR P) High -1.5%