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March 2016

Weekly Currency Insight

Published: Monday 21 March 2016

  • Pound continue to remain under pressure 
  • BoE in no position to raise interest rates
  • GBPNZD remains in a medium downward trend 
So England won the Grand Slam and the 6 Nations in a scrappy but effective game in Paris. And the best part was watching Billy Vunipola lip-syncing to a Back Street Boys track in the dressing room after the game. If you haven't seen the video, it's worth Googling.
 
On to more serious stuff and the resignation of Iain Duncan Smith seems to have absorbed the press over the weekend but it isn't market moving news. Further views on the potential for Britain inside and outside the EU have been voiced but they are just points of view. However, Sterling is in for a really cluttered week of data. It starts with the CBI industrial trends survey today; which should show a slightly less bad situation that the Feb reported. That's the hors d'oeuvres but tomorrow brings consumer inflation, manufacturing output government borrowing and a number of speakers on the state of the economy and inevitably, on the subject of Brexit as well. Tuesday will be a shopper for GBP traders, so get ready.
 
This is also a big week for data from the Eurozone.  We have already heard this morning that the ECB is ruling out further 'extraordinary' measures to support the Eurozone economy. Those sorts of measures tend to weaken the Euro, so ruling them out ought to effectively strengthen the shared currency.
 
The commodity linked currencies of the Aussie, Kiwi and Canadian Dollars as well as the South African Rand are all a tad weaker today after another slide in energy prices. There isn't much more to say on that; it is just a straightforward cause-and-effect thing but the Reserve Bank of Australia Governor is due to speak this evening (UK time) and his words will be followed very carefully and there is a smattering of Aussie and New Zealand data through the week, so plenty to keep us watchful.
 
We will get the final Q4 economic growth data from America this week but it doesn't appear anyone is expecting any kind of last minute revision. If that's true, then the 1.0% quarter-on-quarter growth figure will still leave US growth in a mildly positivize phase but is it enough? That's not rhetorical; I just don't know whether that is going to be enough to justify the Fed's rate hike. I think it is more likely to support their recent dovish tone. The USD is still reasonably strong but it has lost some of its momentum in recent weeks.
 
And it's a short week, so all this excitement needs to be packed into 4 days. Then it is the Easter break where we celebrate by putting our pancreases under extreme strain. Seems odd when you think of it like that but that is the case. Anyway, I'm off to buy a few kilos of chocolate anyway.
 

The interview

 
A newly qualified accountant goes for an interview with a small local company. The MD meets him and, after some small talk, the MD says, "What I need is someone to take over all my worries."
"Excuse me?" says the young guy.
"Well I worry about a lot of things but mostly they come down to money. So I need someone to do that worrying on my behalf."
"That sounds like a lot of responsibility." Says the young man. "What does the job pay?"
"It's £75,000 per annum with some perks as well." Sys the MD
"That's a great offer but how can a small manufacturer afford that?" asks the guy.
"I like it," Says the MD. "You're a fast learner. That's worry Number One."
 

EUR
 

Sterling Euro remained relatively range bound last week, with a slight bias to the downside. Brexit fears returned to the market after a poll in the Telegraph showed that 52% of voters supported leaving the EU which resulted in the currency pair pushing towards the twelve months low. The Pound was lifted by stronger average earning and better claimant jobless data however the recovery in the rate was probably down to a more optimistic Bank of England. The BoE left interest rates unchanged and highlighted the negative impact of a possible Brexit on spending. The majority of the policy statement discussed looser financial conditions, strong spending and their concerns about second round inflation effects on wages. The Bank of England are in no position to raise interest rates but this less dovish outlook helped to keep the cross buoyant. This recovery could be short lived as the fact that the EU referendum remains so close is a real concern for investors and should keep Sterling under pressure.



NZD

 
Following on from the surprise interest rate cut from the Reserve Bank of New Zealand 2 weeks ago and the subsequent sell off in the Kiwi Dollar, last week saw the Pound tread water trading between 2.10-2.14. The Bank of England’s meeting came and went without any headlines and as we enter this week, the main focus will be tomorrow’s UK inflation data, Wednesday’s NZ trade data and UK retail sales on Thursday. If any of the data releases miss their forecasts dramatically, we could see some volatility. As it stands GBPNZD remains in a medium term downtrend with resistance coming in at 2.14-2.15 and support at 2.05-2.09 – if GBPNZD fails to break up through 2.15 chances are it’ll turn over and look for a new low below 2.05. If it does sustain a rally over 2.15 then orders at 2.20 would be worthwhile. Contact your Halo Financial Consultant for more information. Brexit fears still loom large on the horizon with a weekend poll putting the stay/leave camp at 50:50 and consequently the Pound is still vulnerable to weakening in the run up to the 23rd June vote. 



USD


Sterling has been in a fairy tight range since the dovish FOMC last week and looks like the 1.4480/1.4500 area is the next level of resistance. A poll of polls showing the leave campaign narrowing the gap and further political upheaval from within the ruling conservative party have weighed on the Pound so we are unlikely to see a test of higher levels in the short term. This week brings inflation data tomorrow and Retail sales on Wednesday although with the Easter break looming next week, data is expected to fall in line so expect current ranges to hold.



 

Daily Currency Insight by David Johnson

USD analysis by Ricky Nelson

Euro analysis by Denzil Rickerby

NZD analysis by Alastair Sweetman
 

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