Pound Under Pressure as UK Heads for Double-Dip Recession

Australian Dollar (AUD) Shaken by Doubts over US Fiscal Stimulus

The Australian Dollar (AUD) fell out of favour ahead of the weekend as the general sense of market optimism faded.

With investors reining back their expectations for the upcoming US fiscal stimulus package, the incentive to favour risk-sensitive assets weakened, leaving the Australian Dollar on the back foot. Even though November’s home loans figure showed unexpectedly strong growth on the month, the ‘Aussie’ failed to receive any boost.

However, as long as the fourth quarter Chinese gross domestic product strengthens as forecast today, AUD exchange rates could find renewed cause for confidence.

Pound (GBP) Softens as UK GDP Proves Negative

The Pound (GBP) came under a degree of pressure as November’s UK gross domestic product data confirmed a sharp downturn in economic activity.

Although the monthly growth rate was not quite as weak as anticipated, clocking in at -2.6% rather than -5.7%, this was not enough to reassure investors. With all signs pointing towards the UK economy experiencing a double-dip recession thanks to the ongoing Covid-19 crisis, the mood towards the Pound soured.

In the absence of any fresh UK data releases, GBP exchange rates may struggle to find any rallying point in the short term.

Euro (EUR) Positive Even as Eurozone Trade Surplus Narrows

The Euro (EUR) managed to largely shake off the impact of a narrowed Eurozone trade surplus during Friday’s European session.

Even though the trade surplus narrowed further than forecast, the single currency managed to hold onto a positive footing against many of the majors. While signs point towards the Eurozone experiencing greater trade disruption, EUR exchange rates remained on an uptrend thanks to the weakness of rival currencies.

However, the upside potential of the Euro could be limited as long as markets expect to see inflation across the currency union remain in negative territory.

US Dollar (USD) Strengthens Despite Retail Sales Contraction

The US Dollar (USD) held strong thanks to a renewed sense of market caution, overshadowing a disappointing retail sales report.

Demand for the US Dollar generally picked up heading into the weekend, even as December’s retail sales fell short of forecast to deliver a -0.7% contraction on the month. This fresh evidence of the negative impact of the ongoing pandemic on the US consumer was not enough to drag USD exchange rates lower given the general surge in safe-haven demand.

Unless market sentiment shifts again, the US Dollar could hold onto a positive footing over the course of the day as confidence in the upcoming US fiscal stimulus package fades.

Canadian Dollar (CAD) Weighed Down by Oil Price Decline

The Canadian Dollar (CAD) saw only limited support as oil prices dropped on Friday.

With global demand for oil still looking set to remain muted in the months ahead, thanks to tightening Covid-19 restrictions, the market turned increasingly bearish. This limited the appeal of the commodity-correlated Canadian Dollar, especially in the face of a wider deterioration in market risk appetite.

However, a resilient showing from December’s housing starts figure could give the Canadian Dollar a boost against its rivals tonight.

New Zealand Dollar (NZD) Slips as Market Optimism Fades

The New Zealand Dollar (NZD) slumped as markets lost their earlier sense of optimism over the prospect of future US fiscal stimulus.

With investors betting that the stimulus could see some watering down in the Senate, market sentiment started to sour, leaving the ‘Kiwi’ on the back foot. Although December’s food inflation report showed a stronger uptick than anticipated, the New Zealand Dollar still weakened.

As long as market risk appetite remains lacking, NZD exchange rates may struggle to find any positive momentum.

Data Releases

13:00 CNY Gross Domestic Product (Q4) 6.1%
00:15 CAD Housing Starts (Dec)

Louisa Heath