Pound Rallies as UK Growth Betters Forecast

Australian Dollar (AUD) Weakened by Risk Aversion

The Australian Dollar (AUD) failed to hold onto a positive footing on Friday in the absence of any domestic data releases.

Investors saw little reason to favour the ‘Aussie’ heading into the weekend as market risk appetite faded. Lingering doubts over the strength of the global economic outlook kept AUD exchange rates under pressure, despite the latest moves in the wider rollout of Covid-19 vaccines.

Ahead of the release of the Reserve Bank of Australia’s (RBA) meeting minutes tomorrow, the appeal of the Australian Dollar may remain muted.

Pound (GBP) Shored Up by Better-than-Expected UK Growth Data

The Pound (GBP) found some gains on the back of a better-than-expected fourth quarter UK GDP report.

While growth still contracted sharply on the year in the final three months of 2020, it was not quite as deep a decline as forecast, clocking in at -7.8% rather than -8.1%. This suggests that the economy proved a little more resilient at the end of the year, even though investors still see reason to fear a fresh first quarter slowdown.

However, as the underlying picture still points towards the UK economy trailing significantly behind its rivals, the mood towards the Pound could soon start to sour once again.

Euro (EUR) Softens on Spanish Inflation Dip

The Euro (EUR) faltered thanks to a downward revision to January’s finalised Spanish inflation rate, lowering from 0.1% to 0% on the month.

With inflation continuing to run far below the ECB’s 2% target across the currency union, the case for further policy action remains, to the detriment of the single currency.

A narrowing of the Eurozone trade surplus could put additional pressure on EUR exchange rates this evening as worries over the currency union’s health persists.

US Dollar (USD) Demand Limited after Consumer Sentiment Miss

The US Dollar (USD) saw limited demand as February’s Michigan consumer sentiment index failed to pick up as expected.

Rather than rising to 80.8 as forecast, the index instead dipped to 76.2, indicating that consumer sentiment soured in the last month. This cast fresh doubt over the health of the US economy, with weakening consumer confidence likely to drag on growth over the course of the first quarter of the year.

If the general sense of market risk appetite continues to weaken, a renewed sense of safe-haven demand may help to shore up the US Dollar.

Canadian Dollar (CAD) Weakens Thanks to Wholesale Sales Decline

The Canadian Dollar (CAD) remained under pressure thanks to a sharp monthly contraction in December’s wholesale sales data.

As sales dropped -1.3% on the month, evidence of weakening activity within the domestic manufacturing sector left CAD exchange rates on a softer footing. Even though January’s producer price index figures proved more encouraging, the Canadian Dollar still trended lower.

On the other hand, if December’s manufacturing sales rebound on the month as forecast, this may help CAD exchange rates to recover some of their losses.

New Zealand Dollar (NZD) Slumps in Spite of Manufacturing PMI Strength

The New Zealand Dollar (NZD) slumped on Friday even as January’s manufacturing PMI jumped from 48.3 to 57.5, indicating the manufacturing sector returned to a solid state of growth in January.

NZD exchange rates instead came under pressure thanks to more cautious trade before the weekend and a lack of increase in the latest food inflation data, with weaker inflation giving the Reserve Bank of New Zealand (RBNZ) greater cause for caution.

Another month of weakness for the corresponding services PMI may see the New Zealand Dollar shedding further ground this morning.

Data Releases

08:30 NZD Services PMI (Jan) 49.8
21:00 EUR Eurozone Balance of Trade (Dec) €25.3 billion
00:30 CAD Manufacturing Sales (Dec) 0.6%

Louisa Heath