Pound Sterling made strong gains on Friday morning, but then spent the rest of the day’s session surrendering these again. By the time trading closed GBP exchange rates had fallen back down to opening levels, if not below.
Markets were unimpressed by the latest gross domestic product figures for the UK, despite the data for the fourth quarter of 2017 having beaten forecasts. Quarter-on-quarter GDP unexpectedly accelerated from 0.4% to 0.5% during the October-December period, while year-on-year GDP slowed from 1.7% to 1.5% instead of the 1.4% expected.
However, this still marked the economy’s worst annualised performance since 2012 and the Office for National Statistics (ONS) warned that the outlook for the service sector remained weak in the long-term.
GBP/EUR Exchange Rate Surrenders Gains even as Markets React to Draghi Currency War Comments
The GBP/EUR exchange rate weakened on Friday, even though the Euro itself was on poor form versus the other major currencies. The Euro had shot higher on Thursday after an unexpectedly upbeat press conference with European Central Bank (ECB) President Mario Draghi, but his warning to US officials later in the day regarding comments made about the strength of the US Dollar unsettled the Euro and sparked fears of a currency war.
Treasury Secretary Steven Mnuchin had said on Wednesday that a weak US Dollar was good for the US as it boosted trade. Draghi responded on Thursday by citing an international agreement between nations, including the US, not to attempt to jawbone currencies lower.
A speech from ECB official Benoit Coeure is the only development left on today’s data calendar.
US GDP Slows Below Forecasts, but GBP/USD Exchange Rate Sheds Morning’s Strong Gains
US GDP figures for the fourth quarter disappointed on Friday, but the US Dollar was nonetheless able to recover the morning’s losses versus the Pound, despite having started the day down by around -1%.
Annualised quarter-on-quarter GDP fell from 3.2% to 2.6% – a much bigger drop than the slip to 3% that had been expected by economists.
US President Donald Trump gave his eagerly anticipated speech to the delegates at the World Economic Forum (WEF) event in Davos. However, with other officials in Davos having already made it clear that the US is going to continue pursuing its ‘America first’ agenda there was little in Trump’s speech to surprise, excite, or alarm markets.
US personal consumption data is set for release today. These figures are the preferred measure used by the Federal Reserve to gauge inflationary pressures. Signs of strength here would therefore boost the monetary policy outlook.
Risk Appetite and Core Inflation Strength Boost Canadian Dollar; GBP/CAD Weakens
A combination of a weak US Dollar and strong Canadian data combined to push the GBP/CAD exchange rate lower on Friday.
West Texas Intermediate (WTI) crude oil was still on the rise, supporting the commodity-correlated Canadian Dollar, while consumer price index figures for December showed an uptick in core price growth from 1.5% to 1.6%. Even though month-on-month prices fell by a worse-than-expected -0.4%, the acceleration in core price growth helped justify the Bank of Canada’s (BOC) decisions to raise interest rates last year.
GBP/AUD Exchange Rate Unable to Hold Opening Levels as Risk Appetite Props up Australian Dollar
GBP/AUD had managed to hold onto opening levels for much of the day, but eventually lost its grip and tumbled into negative territory towards the end of the London session.
Markets were holding off on buying the Australian Dollar due to the number of US developments on the economic calendar – with several pieces of high-tier data and the speech from President Donald Trump all threatening to create strong volatility for risky assets.
Once the day’s key data was out of the way, traders could be confident that there weren’t going to be any negative shocks to the Australian Dollar and therefore started buying it en masse.
ANZ Roy Morgan weekly consumer confidence figures are set for release tonight.
Market Demand for Risk Undermines GBP/NZD Exchange Rate
As with the other majors, GBP/NZD was unable to keep its head above the water and recorded losses as the weekend approached.
There was no domestic data release from New Zealand to give the ‘Kiwi’ fresh support, but the New Zealand Dollar was able to climb higher thanks to market appetite for risk assets.
The latest New Zealand trade balance figures will be released tonight. Considering the forecasts are for the deficit to narrow from –NZ$1.19 billion to –NZ$125 million, the New Zealand Dollar could receive a major boost.