Sterling suffers as risk aversion is “king”
A market update from Charles Purdy, director of Smart Currency Exchange.
Sterling fell further on Friday amidst renewed risk aversion, and a growing belief there is no chance of a UK interest rate hike in 2016. After falling through key support levels earlier in the week, sterling fell to a five-and-a-half month low against the US dollar and a twelve-month low against the euro on Friday.
A quiet start to the week with no key economic data set to be released from the UK today. Tuesday sees the release of UK inflation data throughout December. The latest jobs report will follow on Wednesday, with investors focusing primarily on the change in the number of people claiming unemployment benefits, and the latest average earnings figures. Friday’s retail sales figures will wrap the week up, with markets looking for sales volumes to bounce back from a disappointing 0.1% contraction throughout November.
Will the euro see more surprising strength?
Friday was an excellent end to another impressive week for the euro, but this seemed to be driven by weakness from both sterling and the US dollar, rather than by euro strength.
The euro managed to reach fresh highs against sterling yet again, pushing further 12-month highs. This has largely been driven by negative sentiment for sterling and poor data at start the year. The single currency strengthened against the US due to worse-than-expected data from Stateside – on Friday, in particular, as downbeat economic reports pushed the euro up to two-and-a-half week highs.
Tuesday will see the first real piece of data for the Eurozone. The final Consumer Price Index (CPI) – an indicator of inflation – is released from Germany. With the previous figure being 0.3%, anything above this will be seen as a positive figure for the country, but a large change is not likely. On Wednesday we see CPI data for the Eurozone as a whole, but this is expected to remain slightly below 0%, at -0.1%, putting more pressure on concerns regarding whether the new quantitative easing is having the desired effect on the region. This programme may be an Achilles’ heel for the Eurozone in the long term, so be sure to mitigate currency exchange risk on your future euro transactions.
Markets reassessing on Monday
It was an underwhelming day for the US dollar on Friday, with data releases failing to show further strength. With retail sales and inflation in the form of a Producer Price Index (PPI) released, figures were less than impressive, with both showing slight contractions on the previous month’s figures. As well as, this industrial production levels, which have struggled in the last five months, continued to do so.
With US banks closed for Martin Luther King Jr Day on Monday, we can look forward to the start of data releases on Wednesday. The Consumer Price Index (CPI) is expected to follow in last week’s PPI data’s footsteps, with no increase predicted. Thursday will see the release of weekly unemployment claims, which is expected to post yet another stable figure. Any surprises, however, could spell movement in US dollar markets.
Canadian dollar could do with encouraging data
After a slow start to the week, the Canadian economy will be extremely busy from Wednesday onwards. Manufacturing sales data is out early in the afternoon, followed the Bank of Canada’s monetary policy report, rate decision and statement. On Friday we will have inflation data in the form of a Consumer Price Index (CPI), as well as core retail sales figures. The latter especially has been a disappointment in the last few months, so investors will be hoping that the new year brings an improvement.