Sterling still unpredictable
A currency market update from Charles Purdy, director of Smart Currency Exchange.
More sterling unpredictability
Another unpredictable day for sterling on Friday, with recovery from a 13-month low seen against the euro. With no economic data of note released from the UK on Friday, sterling movement was largely dictated by events elsewhere. Profit-taking against the euro saw sterling make up ground against the single currency, whilst better-than-expected retail sales data from the US saw sterling fall against the dollar. At the start of trading we have seen a “gap” upwards for sterling against the euro which may be a consequence of Draghi making a speech later today and worries over what he may say to undermine the euro.
Despite a quiet start to the week, UK inflation data will be a key figure when it is released tomorrow. With negative inflation fresh in the memory, investors are likely to take a positive view of sterling should inflation reach the 0.3% forecast throughout January. Wednesday’s average earnings index will also be closely watched, with positive wage growth indicative of a positive economic climate. On Friday we have retail sales figures for the past month which are expected to show a strong rebound from the 1% contraction experienced in December. We also have the Public Sector Borrowing Requirement which will be very carefully scrutinized given that January is a key month for tax collections and we have a UK budget coming up very soon.
We also expect further “revelations” on the in/out vote of Britain’s membership of the European Union with regard to timing and as to what concessions have been negotiated with its other members. This will have an effect on sterling.
Will news and data for the Eurozone help the euro to regain ground?
The euro ended up having a disappointing day on Friday as it lost ground across the board. Preliminary data showed that growth figures for Germany came out as expected, at 0.3% in the fourth quarter of 2015, with the year-on-year figure also bang in line with expectations at 1.5%. However, there was a separate report showing that the Eurozone’s industrial production fell by 1% in December in comparison to expectations of a 0.3% gain.
This week is expected to be much busier than last. Mario Draghi delivers his quarterly testimony to the Economic and Monetary Affairs Committee of the European Union which will be very carefully analysed in an attempt to identify as to what could happen at Marchs ECB meeting. Then on Tuesday we have German ZEW business confidence data released; this is expected to fall from the previous month from 59.7 down to 56.5. Given the recent shaky ground that currencies like the euro have been trading, any events elsewhere could potentially cause significant movement for the euro.
Mixed sentiments for US dollar
It was a mixed day for the US dollar on Friday as retail sales showed positivity for the first time in two months, backing up further strength for the US currency. However, consumer sentiment data released later in the day dropped slightly to its lowest figure in five months, which could have been seen from the recent personal spending data, which also lacked any growth.
This week we can look forward various inflation releases with Wednesday’s Producer Price Index (PPI) expected to remain at a negative figure, as well as Friday’s Consumer Price Index. Beyond this, it will be the US Federal Reserve Meeting minutes that investors will be keeping a keen eye on for any comments centred on possible interest rate rises in the next meeting in March. US Federal Chair Yellen recently downplayed claims advising that it is way too early to think about rises in March.
New Zealand dollar looking to recoup its losses
After a torrid Friday for the New Zealander economy, which saw it fall over 1% against most major currencies, New Zealand will be hoping that the data early this week will offer some relief. Its retail sales figures are out later tonight and are expected to be slightly lower than last month’s figure. Its quarterly Producer Price Index (PPI) release is on Wednesday. Last quarter saw the greatest growth in this area for nearly three years, and similar results on Wednesday could push nearer to the New Zealand dollar-sterling six-month high that we briefly touched on Friday. Any surprises, whoever, could spell trouble for the New Zealand currency, particularly in light of the recent global stock market slides.
We also had disappointing growth figures out of Japan released this morning which showed contraction at -1.7% for the fourth quarter of 2015 against an expectation closer to -1%. Worries over low wage inflation at home and the state of the world economy are making it very difficult to get Japanese consumers to spend money, especially as the goods they buy should be getting cheaper.