No reprieve for the Pound just yet
Whilst the UK awaits tomorrow’s spring budget release, Sterling was unable to regain the 1.2300 level against the Dollar on Monday and drifted to lows below the mid-1.2200 level while the Euro advanced to seven-week highs of around 1.1530 against the Pound.
The latest BRC data recorded a 0.4% decline in like-for-like sales for the year to February after a 0.6% decline the previous month whilst food sales held firm for the month. There was a decline in non-food sales with the first quarterly decline in sales since November 2011. This should maintain expectations that retail spending has worsened over the past three months.
This could have a wider impact in curbing growth and the Pound remained weaker this morning. There is some caution ahead of tomorrow’s budget statement even though no major policy changes are expected. Uncertainty surrounding the triggering of Article 50 has also had some impact in stalling demand for the Pound.
US factory orders data were slightly stronger than expected yesterday, with a 1.2% gain for January after a 1.3% increase the previous month which continued to suggest an underlying improvement in manufacturing. Narrow ranges prevailed in US trading with the Euro remaining below the 1.0600 level against the Dollar with no significant change seen throughout the day.
In the meantime, global markets are staying directionless ahead of the critical US Nonfarm Payrolls (NFP) due on Friday. The NFP could give extra oxygen to the already high expectations of a rate hike from the Federal Reserve at next week’s meeting.
The Euro’s attempts to advance against the Pound were short-lived yesterday morning following the release of a disappointing GDP report from Greece. The weak link of the Eurozone continued to hinder the single currency as the beleaguered Greek economy failed to grow in 2016. Figures show that Greece’s GDP dropped from 0.6% to -1.2% in the fourth quarter, by far the worst performance since 2015 during the height of the debt crisis.
While the Greek economy was expected to slow in 2016, the shock fall at the end of the fourth quarter prompted growth to plummet from 2% to -1.1% year-on-year, falling dramatically short of the 0.3% estimate. The drop has also renewed fears about the state of the nation’s finances ahead of its discussions with the European Stability Mechanism (ESM) for a fourth bailout. The bailout is needed to avoid defaulting on a €7bn debt repayment in July.
This data contradicted Prime Minister Alexis Tsipras, who said earlier on Monday that,
‘They may want to delay negotiations on the technical level, but the river is not turning back. Greece has turned the page, the economy is faring better.’
The Euro versus the Swiss Franc fluctuated at the 1.0700 area yesterday with the Swissy losing some ground following Friday’s comments from Swiss National Bank Chairman Jordan. However, the Dollar pushed back above the 1.0100 level against the Swiss Franc where there has been significant resistance over the past three weeks and the Dollar held just above this level this morning. The Swiss currency was unable to gain any additional support from further concerns surrounding the French Presidential election and there was no immediate Franc backing from a decline in European equities, although risk conditions will be monitored closely.
Data to watch: GBP- Halifax House Prices; EUR- GDP YoY & MoM; USD- Trade Balance; USD- Consumer Credit (Jan); CAD- Ivey Purchasing Managers Index; JPY- GDP; JPY-Trade Balance; JPY- Current Account (Jan).