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March 2016

Weekly Currency Insight

Published: Friday 04 March 2016

  • Pound remains under pressure 
  • Sterling Euro bounced aggressively from the 1.2600 lows 
Yesterday's release of the February UK service sector purchasing manager's index cause a bit of a flap as the sentiment index fell to the lowest it has been since 2012. Sterling slipped and that took the shine off a relatively positive week for the Pound. Although the direction of travel for Sterling won't be to everyone's taste, it is nice to report something causing the Pound to move which doesn't contain the word 'Brexit'.
 
The Eurozone PMI index was the worst in 13 months and that caused the Euro to twitch in a negative direction yesterday. Fears were expressed in many quarters that the Eurozone's fragile recovery could slip into stagnation. In fact France's PMI was into negative territory for the first time in a year.
 
US version of that service sector index, as published by the Institute for Supply Manager gave us a positive result for a change. The ISM's non-manufacturing index slipped from 53.5 to 53.4 but that was still on the right side of the 50 divide between positive and negative sentiment.
 
Today brings the US employment report for February. Roughly 200,000 new jobs are thought to have been created and wages are expected to have risen by a modest 0.1%. The USD has given up on some of the gains it made in the earlier part of the year but should extend those gains if the numbers are as per these forecasts.  However, there is also a chance we will see the GBPUSD rate push up to $1.43 before that happens.
 
Other than the US employment data, the market is a quiet one today so we can all start switching off early and planning our weekends. If you haven't done anything about it yet, can I just say two words? "MOTHER'S DAY". You know what you need to do. Have a great weekend everyone.
 

AUD

 
GBPAUD remains in the downtrend this week – a succession of strong Aussie data meant that the Pound struggled to gain any momentum against the Dollar. Australian GDP, trade balance and retail sales figures were all decent figures and it’s now unlikely that the RBA will need to cut interest rates for the rest of the year. UK data conversely has been disappointing with manufacturing, construction and service sector data missing the mark and the Pound remains under pressure. In the run up to the EU Referendum on the 23rd June, the Pound is going to stay vulnerable to further weakness so trade accordingly.  We would advise you to hedge your bets and trade a portion sooner rather than later. 




CAD

 
The Canadian Dollar has held below the 1.90 level against the Pound this week, On Wednesday, Canadian GDP data exceeded expectations coming out at 0.8% compared to a flat figure expected.
 
The Canadian Dollar sold off a little on Thursday and Friday following a bout of USD weakness.
 
For those looking to sell GBP and buy CAD before the June referendum, we would suggest biting the bullet and transferring a good portion of your funds at current levels as we expect the Pound to continue its rocky road in the coming months. 




 

EUR
 

Sterling Euro has bounced aggressively from the 1.2600 lows seen in mid-February touching 1.3000 on an inter-bank level earlier this week. The market had been incredibly oversold on the back of renewed fears that Britain would vote to leave the Eurozone. Traders are beginning to re-price that risk although at the moment the current move is simply a correction rather than a change in sentiment. That may change, however, when the European Central Bank meet on the 10th March and decide to do something extraordinary to stimulate growth. Most are expecting at least a cut of the deposit rate further into negative territory. If they also increase quantitative easing both in scope and scale, then the Euro may well weaken significantly.  On the flip side, if the market feels let down again, then the single currency will gain ground as traders begin to doubt the credibility of Mr Draghi.




NZD


 The downtrend in Sterling NZD continued this week. The NZD strengthened after diary prices rose 1.4% the first time this year which is another piece of evidence of an improvement in the NZ economy which would reduce the need for RBNZ to ease any further.  Commodity currencies were also supported by the Central Bank of China cutting their reserve requirement ratio helping to spur easier credit conditions.  Sterling on the other hand hasn’t fared so well, with the EU referendum looming, this has weighed on the GBP as investors are planning for the worst by hedging against a fall in the value of the Pound. This week’s data clearly showed that the uncertainty of a possible Brexit has already affected confidence in the UK economy. With both the service and manufacturing sectors growing at their slowest pace in nearly 3 years, the construction sector also at its lowest in 10 months. We still remain bearish on the GBPNZD as the downtrend remains intact. 




USD

 
The Pound has gained some ground over the Dollar during the course of the week as traders pare back bets that the Pound will lose ground if British voters decided to leave the European Union. The recent drop had looked a little overstretched particularly as we are still 4 months away from the referendum. Strong US data today as Non-Farm payrolls came in at 242k versus an expectation of only 200k failed to trigger a Dollar rally and for now it looks like we will enter next week within current trading ranges. The Sterling Dollar exchange rate is likely to trade sideways as attention is focused on the ECB next week.



Daily Currency Insight by David Johnson

USD analysis by Ricky Nelson

Euro analysis by Denzil Rickerby

CAD analysis by Michael Hart

NZD analysis by Alastair Sweetman

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