Q4 GDP Figures Beat Forecasts but Pound Sterling Weakens as Data Fails to Impress
While Pound Sterling had started the day on roaring form on Friday, by the time markets closed GBP had shed much of its gains. Fourth-quarter UK GDP figures beat forecasts by ten basis points both on the quarter and the year, yet markets remained wary. Long-term concerns over the service sector – the powerhouse behind the UK economy – remained, according to the Office for National Statistics (ONS).
With the Pound at multi-month highs versus some of its peers, many investors couldn’t resist locking in profit, with the sell-off further undermining Sterling’s initial strength.
GBP/EUR Weakens to Opening Levels despite Slump for Euro as Markets Fear Currency War
What had started out as solid gains for the Pound to Euro exchange rate slowly vanished over the course of the day. This was despite EUR slumping versus its other peers, with markets concerned by recent comments from European Central Bank (ECB) President Mario Draghi directed at US Treasury officials. After Treasury Secretary Steven Mnuchin on Thursday claimed a weak US Dollar was good for trade, Draghi responded against talking down USD or starting a currency war between EUR and USD.
German import price indices for December are the only release on the calendar today relating to the Eurozone.
GBP/USD Gains Fall Back Towards Opening Levels despite US GDP Disappointment
There was plenty on the economic calendar yesterday to keep markets on their toes. The GBP/USD exchange rate had soared higher in the morning, within touching distance of 1% gains, but following the UK’s GDP figures these began to shrink towards opening levels.
US GDP for the fourth quarter was more of a clear-cut disappointment than the UK’s data, with quarter-on-quarter annualised growth slowing from 3.2% t0 2.6% instead of the 3% as expected. The advance goods trade deficit also unexpectedly widened, although durable goods orders saw growth of 2.9% in December – a whole two percentage points higher-than-expected.
There could be plenty of volatility for the GBP/USD exchange rate today, as the Federal Reserve’s preferred measure of inflation – personal consumption expenditure – is set for release this afternoon.
Strong Losses for GBP/CAD Exchange Rate as Canadian CPI Shows Core Price Growth Uptick
The weak US Dollar continued to push up the price of West Texas Intermediate (WTI) crude oil, while Canadian consumer price index figures showed an uptick in year-on-year core price growth. All this meant the Pound Sterling to Canadian Dollar exchange rate slumped into negative territory.
Month-on-month, consumer prices declined -0.4%, against expectations of -0.3%, but the uptick in annualised core price growth distracted investors. The market remained firmly in the mood for risk, which helped prop up CAD.
GBP/AUD Exchange Rate Slumps as Market Risk Appetite Climbs Following Weak US Data
While GBP/AUD remained largely around opening levels for most of the day, the Pound suddenly slumped towards the end of the trading session on Friday. This was because markets had been waiting for a long itinerary of potentially volatility-inducing US data and developments in Davos to conclude before taking up positions on the Australian Dollar. Once they were certain the coast was clear and risk appetite remained elevated, the ‘Aussie’ was pushed significantly higher.
ANZ Roy Morgan Australian consumer confidence figures for last week will be release late tonight, which could create some opening volatility for GBP/AUD tomorrow morning.
GBP/NZD Slides as New Zealand Dollar Gets Boost from Risk Appetite
The New Zealand Dollar was also enjoying support from market risk appetite yesterday, although not to the same extent as the Australian and Canadian Dollars. No domestic economic data was released, but GBP/NZD was still pushed a fair way into negative territory.
GBP/NZD could make some gains overnight as the New Zealand trade balance for December is set for release tonight.