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Pound at 7-week low

Pound at 7-week low

The Pound fell to a seven-week low against the Dollar on Friday after worse than expected data on the UK’s services sector showed that growth had slowed to a five-month low. The Pound fell 0.3% against the Dollar after the Markit/CIPS index of sentiment among purchasing managers (PMI) showed a further dip to 53.3 following its first fall in four months in January. A poll of analysts conducted by Reuters had forecast a figure of 54.1. This also caused Sterling to fall to its lowest levels in nearly four weeks against the Euro.

The US Dollar traded with a slight positive bias over the weekend based due to growing expectations that the Federal Reserve (Fed) is more likely to raise interest rates at its upcoming meeting on March 14-15. Fed Chair Janet Yellen explained that a rate increase at the next meeting would likely be appropriate if it is determined that data on employment and inflation are continuing to move in line with expectations. These expectations have been detailed as: the pace of tightening likely being faster this year than in 2015 and 2016, the employment goal being essentially met and inflation moving closer to the 2% target.

On Friday, however, the US Dollar turned lower against a basket of currencies as investors preferred to lock-in some profits after the Fed Chair Janet Yellen reaffirmed possibilities of a March rate hike. Market participants attributed Friday’s slide in the EURUSD rate to a sharp reversal in the single currency, rather than significant Dollar weakness. This was after the latest poll showed that far-right French presidential candidate Marine Le Pen lost some ground, which eased worries of a Frexit.

In the Euro area, the market expects the European Central Bank (ECB) to stick to its dovish tone at its meeting on Thursday. Although the ECB has hit its 2% inflation target, there are still no signs of an upward trend in underlying prices.

The Euro remains vulnerable amid the latest comments from a Swiss central banker, Marcel Zimmerman, that Marine Le Pen’s victory in the French elections appears more likely and that markets are already prepared for it. Markets now look forward to the Eurozone retail PMI and Sentix investors’ confidence data for fresh clues on the Euro.

Data out last week showed a positive surprise for India’s GDP for Q4 2016. The data showed growth of 7.0% which was above the 6.5% consensus estimate. This was all the more surprising because economists had expected growth to be severely curtailed by the decision to remove high denomination notes from circulation during the autumn.

Demonetization, as it was called, was aimed at encouraging Indians to use banks and shift the country away from a predominantly cash economy. It was expected to hurt the economy given the large amounts of cash which was being taken out of circulation and deposited in bank accounts or simply lost because people failed to convert their notes before the decommissioning deadline.

Data to watch: AUD Retail Sales; USD Factory Orders.

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