Sterling begins 2016 on a low, thanks to dollar strength
A currency market update from Charles Purdy, director of Smart Currency Exchange.
A tough week for sterling saw it finish the year at a fresh eight-month low against the US dollar. With little economic data released following the Boxing Day Bank Holiday, market movement was largely dominated by existing investor sentiment. Following the US Federal Reserve’s decision earlier in the month to raise interest rates for the first time since 2006, sterling has fallen sharply against the US dollar. Although sterling’s performance against the euro was more positive, it still fell throughout the week against the single currency.
The Purchasing Managers’ Index data from the manufacturing, construction and services industries is expected this week; markets will be eager to analyse the results to gain any clues as to the strength of the UK economy.
Busy week ahead for the euro
The last day of the year was a quiet one for the euro, with liquidity low as traders’ minds appeared to be focused on the New Year’s festivities!
The start of 2016 sees data releases begin in earnest, with German Inflation data and the results of the Europe-wide Manufacturing Purchasing Managers’ Index (PMI). On Tuesday, 5 January, unemployment data will be released from Spain and Germany first thing, then later on, we will see key Inflation figures announced. On Wednesday, 6 January, we have the Europe-wide Services PMI data comes out, then on Thursday we will learn the level of unemployment in the Eurozone as a whole. The week will be rounded off with German Retail Sales data, then Industrial Production and Trade Balance data from Germany and France.
An eventful New Year for the US dollar
We’ve seen the US dollar trading narrowly against its rivals in the relatively quiet week we’ve had, although following on from the US currency’s excellent year, we saw the US dollar-sterling rate trading close to its strongest levels since April 2015.
On the last day of the year, we saw the US release their Pending Home Sales data, with a worse than expected result of -0.9%, compared to the previous figure of 0.2%; and US Initial Jobless Claims data at a figure of 287,000, compared to 267,000 previously. Counteracting the poor Employment data, we saw a neutral Continuing Jobless Claims data result released, at 2.198 million, compared to the previous 2.195 million, which left the dollar trading narrowly in a sideways trend.
The start of 2016 compensates for the end of a quiet 2015, with a basket full of data released from the US, including US Manufacturing Purchasing Managers’ Index data, Federal Open Market Committee (FOMC) meeting minutes, Initial Jobless Claims data, and the US unemployment rate. All of these results should have a significant impact on the strength of the US dollar; and could cause movement for the dollar against its major currency pairings.
A rollercoaster ride for the South African rand
Commodity price uncertainty and political unrest within the South Africa government have driven the rand exchange rate to record lows against the US dollar, euro and sterling throughout 2015. The rand dropped sharply in value in early December, after three new Finance Ministers in five days. The final appointment of previous minister, Pravin Gordhan, saw the currency rally, in spite of persistent base metal price softness.
The first week of 2016 sees a host of Economic Data to be released, the most notable being the US Manufacturing Purchasing Managers’ Index (PMI) data on Monday, European Consumer Price Index (CPI) data on Tuesday, Federal Open Market Committee Meeting (FOMC) minutes on Wednesday, Australian Import/Export and Trade Balance numbers on Thursday, and the week will close out with US Unemployment and Non-Farm Payroll figures on Friday.