Daily Forex Commentary
08 January 2018 - GBP lower ahead of Cabinet reshuffle. AUD hit by lower iron ore forecasts. USD edges higher but NZD is top performer so far.
By Nick Parsons
Monday 8 January
British Pound (GBP)
The British Pound had a mixed week and finished just above the mid-point of its range against the US Dollar. GBP/USD began the new year amidst a general sense of optimism around the prospects for a Brexit trade deal. With many banks recommending long-GBP as their top currency trade for 2018, it raced up to a high early on Wednesday morning of 1.3608. From then on it was a rapid slide back down to 1.3500 on a combination of poor UK construction data and very strong US numbers. On Thursday, the GBP was well-bid as the UK Services PMI Business Activity Index rose in December but Friday brought a very poor - but not unexpected - set of new car registration data and the GBP finished at USD1.3565, AUD1.7265 and NZD1.8920. It is reported in The Times this morning that, “Britain experienced its worst year for consumer spending in five years in 2017, after expenditure dropped in the run-up to Christmas as declining real wages and economic uncertainty continued to put a strain on household finances”. Figures being published by Visa and IHS Market today show that retail spending fell by 1% in December on an annual basis, with total expenditure falling for seven of the past eight months. Compared with November, spending fell by 2.6%, contributing to a 0.3% drop for the whole of 2017; the first annual decline since 2012. With few top-tier UK economic statistics this week, attention will most likely be on domestic politics. Prime Minister Theresa May is said to be announcing a major Cabinet re-shuffle on and the media locally will be consumed with what it may or may not mean for economic policy and Brexit negotiations. Ahead of these numbers, the GBP opens in Europe this morning at USD1.3550 with GBP/AUD at 1.7265 and GBP/NZD1.8880.
US Dollar (USD)
USD/GBP expected range: 1.3450 – 1.3610
The first week of the New Year wasn’t short of news for the US Dollar, though its index against a basket of major currencies ended only a couple of tenths lower around the mid-point of its weekly trading range. On Tuesday the Dollar index fell to a 14-week low of 91.44, Wednesday it rallied back up to 91.92 and on Thursday it was back down to 91.50 before ending the week at 91.66. Away from the Fire and Fury of US politics, Friday’s labour market report was generally viewed as a bit of a disappointment. Non-farm payrolls rose just 148,000, compared with the 190,000 consensus estimate. The jobless rate was at 4.1% for a third month, while average hourly earnings increased by 2.5% from a year earlier, after a 2.4% gain in November that was revised downwards. The December numbers, while below forecast, brought the 2017 total to 2.06 million jobs; below 2016 but slightly more than analysts had been expecting at the start of Donald Trump’s first year as president. Overnight in Asia, the USD has strengthened very marginally as both EUR/USD and GBP/USD are between 10-15 pips lower than Friday’s close. All eyes now will be on Friday’s CPI to see whether or not the strength in the economy and labour market is at last feeding through into higher prices. The US Dollar index opens in Europe this morning around 91.75.
European Euro (EUR)
GBP/EUR expected range: 1.1215 – 1.1310
The EUR had a very mixed first week of the year; at one point reaching a fresh 3-year high against the US Dollar but then slipping back on Friday to be below the mid-point of its weekly trading range. Indeed, for all the optimism around the Eurozone economy, the EUR rose only against the USD and was down against all the other major currencies we follow here. Overnight in Asia it has edged a little lower against the USD to be back where it was on Thursday morning at 1.2020. For this coming week, the calendar is quite busy with a string of second-tier economic releases but a growing concern for currency traders is the progress – or otherwise – of talks to form a coalition government in Germany. According to Press reports, two-thirds of Germans believe her best days are behind her, according to the Deutschlandtrend survey for ARD television, while satisfaction with her slipped to 52%, down from 63% in October. Ms Merkel’s husband, Joachim Sauer, retired from his professorship in October, and she is said to have thought long and hard about running for a fourth term. Chancellor Angela Merkel has been the dominant figure on the European political scene for the last decade and uncertainty about her future is likely to weigh down on the EUR despite the solid economic news. This morning brings EU Consumer Confidence and the Business Climate Indicator and we’ll also get to see November retail sales data. The EUR opens in London this Monday morning at USD1.2010, with GBP/EUR at 1.1275.
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