Raphael Sonabend, FX Analyst
UK quarterly GDP yesterday fell to 0.5% from 0.7% whilst annual growth rose by 2.6%, the strongest growth since 2007. The outlook for the UK economy remains positive as analysts generally agree that the full effects of falling oil prices have not yet been felt. US durable goods orders data was surprisingly poor yesterday as the oil price slump could not compensate for a strong dollar and orders fell compared to the previous month. Strong Australian CPI figures this morning have subdued speculation that the RBA will cut their cash rate next Tuesday. Whilst their decision will not be announced until the meeting next week, any hints beforehand should lead to volatility in Aussie pairings. Today’s trading will centre on the US and NZ statements this evening at 19:00 and 20:00 respectively. The Fed will release their first statement of the year about monetary policy as well as announcing the funds rate. Strong US figures should allow for hawkish statement but the real focus will be on any hints of when the first interest rate hike should be; analysts do not anticipate the funds rate being altered.
GBP/EUR: Currently trading at 1.3389
- Poor data out of the UK yesterday morning saw the euro push this rate back down towards the 1.33 mark. Meeting resistance at 1.331, this pair then traded with sideways movement around 1.336. UK preliminary quarterly GDP fell to 0.5% from 0.7% (and below the forecast 0.6%), whilst BBA mortgage approvals fell to 35.7K from 36.7K. Whilst some economists remained positive regarding GDP, saying that falling oil prices and unemployment would continue to boost growth, others were wary of potential downside risks from the Eurozone.
- With no data due out of the UK or Eurozone today, level trading could continue throughout the day. A dovish Fed statement out of the US today could bring some euro strength if there are any hints that the dollar has been overbought.
GBP/USD: Currently trading at 1.5193
- Mediocre UK data, coupled with strong US data, saw Cable rise just under two cent. US durable goods orders fell to -3.4% from -0.9% and core durable goods orders (which excludes transportation items) fell from -0.7% to -0.8%. The unexpected drop was driven by a surging dollar and the backlash of a global slowdown. However, despite these low figures, analysts have remained positive as ‘cars and light trucks’ sold at a 16.8 million annualised rate last month, capping the year off as the best annual performance since 2006. US CB consumer confidence rose to 102.9 from 93.1 as falling oil prices continue to boost optimism.
- Focus for today’s trading will be on the Fed statement tonight. The dollar, which has recovered some lost ground in this morning’s session, could continue to advance on the pound in today’s quiet. A hawkish FOMC statement should see the dollar strengthening and after recent strong US figures, a confident report is expected.
EUR/USD: Currently trading at 1.1343
- The greenback managed to weaken yesterday following unexpected poor US durable goods orders, allowing the euro to temporarily break above 1.14. This was short lived as strong new home sales data and a positive consumer confidence survey released later on in the afternoon enabled the dollar to recover its lost ground.
- This morning’s monthly German consumer confidence survey saw the euro make small gains in what is expected to be a fairly range-bound day of trading, with no major announcements expected until US Fed members convene later this evening. With a positive economic outlook for the US, a hawkish sentiment is expected from the Fed so we may see the dollar strengthen further following the meeting.
GBP/AUD: Currently trading at 1.9026
- On the back of poor US data yesterday afternoon, along with strong UK annual GDP figures, we witnessed the rate move further in favour of the pound, peaking around the 1.92 mark yesterday evening. In an unexpected turn of events, Aussie core inflation figures recorded a 0.7% quarterly increase which helped to alleviate doubt that the RBA would follow the Canadians in cutting their cash rate; all will be decided next Tuesday. Strong figures saw the Aussie gain three cent before finding resistance around 1.895.
- With little data scheduled for release from either side of the pairing for the remainder of this week, investors will be looking towards the series of US announcements for any market volatility.
GBP/NZD: Currently trading at 2.0353
- Whilst quarterly UK GDP fell below expectations, annual GDP rose by 2.6%, the fastest growth of any major economy and the UK’s strongest growth since 2007. Traders focused on the more positive side of this release and the pound strengthened against the Kiwi as a result. This morning has seen trading in favour of the Kiwi and this trend could continue throughout the day.
- Trading today will centre on the RBNZ’s rate statement at 20:00 tonight. In anticipation of tonight’s meeting, volatility could be seen in this pairing towards the end of the day’s session.
GBP/CAD: Currently trading at 1.8894
- Weak oil prices, coupled with a lack of data to support the Loonie, have seen the pound continue to post steady gains against the Canadian dollar. UK quarterly GDP fell short of economists forecast’s as the production and construction sectors shrank last quarter. Rather than giving the Loonie a lift, the pairing traded sideways.
- Another quiet calendar today means investors will look at the US statement tonight for hints regarding monetary policy.
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