Sterling Continues to Surge vs Euro

Eurozone Inflation Falls Below Zero

Headlines

UK Q4 GDP confirmed at 0.5% – Biz investment down, exports up.

GBP/EUR hits fresh 7-yr high – ECB bond-buying weighs on single currency.

GBP/USD touches new 8-week high – But sinks -140 pips on core US CPI.

Canadian CPI beats forecasts – GBP/CAD down 50 pips.

Sterling

The Office for National Statistics (ONS) confirmed yesterday that the British economy expanded by 0.5% in the fourth quarter, bringing total 2014 GDP growth to an impressive 2.7%. The result was in line with market expectations but there were some interesting revisions to some sectors of the report. For instance, business investment declined at the sharpest rate for almost six years (-1.4%) due to concerns over profitability in the oil and petroleum sector. But on the bright side, a sturdy 3.5% increase in exports, which outpaced a slender 1.3% rise in imports, gave Britain a rare boost in net trade.

Overall the GDP report was seen to bode fairly well for the domestic economy in 2015 because consumer spending, which contributes around 70% of total output, is expected to increase due to the slide in oil prices and the long awaited return of rising real wages.

Euro

Sterling struck a new seven-year high against the Euro yesterday as investors continued to fret over the situation in Greece.

Although the Hellenic nation managed to secure a four-month extension to its current bailout programme earlier this week, the Euro came under a little bit of pressure yesterday due to fears that the proposals outlined by Greece’s left-wing Syriza government were unrealistic and that there could be further complications down the line.

The single currency also suffered in response to a sharp drop in Eurozone bond yields as investors primed themselves for the the European Central Bank’s large-scale bond-buying scheme that is set to commence next week. With incredibly low yield values offered across the currency bloc, GBP/EUR appreciated by a further 100 pips to its highest level since autumn 2007.

US Dollar

Sterling touched a fresh eight-week high against the US Dollar yesterday morning but demand for the Pound tailed off against the ‘Greenback’ during the afternoon in response to some better-than-anticipated American data.

Although the non-core US CPI rate sunk to -0.7%, confounding expectations of -0.6%, the US Dollar rallied following the inflation report because the core consumer price index, which excludes highly volatile factors such as food and fuel, remained at a fairly optimistic level of 1.6%. The ‘Greenback’ also garnered support following the latest durable goods orders report, which detailed how demand for expensive long-lasting items surged 2.8% in January, beating expectations of a 1.6% rise.

The sanguine US dataset took ‘Cable’ lower by around 140 pips during the afternoon.

Canadian Dollar

The Pound lost out on another 50 pips against the rejuvenated Canadian Dollar yesterday, for although Canadian consumer prices tumbled to a 14-month low of 1.0% in January investors had anticipated a softer score of 0.8%.

Bets that the Bank of Canada is going to reduce rates over the next six months decreased following the data because Canada now has a higher benchmark CPI rate than the US, the UK and the Eurozone, which, taken with comments from BOC Governor Stephen Poloz earlier on in the week suggestive of interest rate stability, provides little reason for analysts to bet against the ‘Loonie’ at this moment in time.

Australian Dollar

The Pound to Australian Dollar exchange rate registered a 30 pip daily gain yesterday due to a slight dip in risk sentiment related to the upbeat US datastream.

Robust durable goods orders and a sturdy core US consumer price index report stoked concerns that the Federal Reserve could look to raise interest rates in the third quarter and this reduced the appeal of the risk-sensitive ‘Aussie’ Dollar as speculative investors hedged against the possibility of higher borrowing costs over the next few years.

New Zealand Dollar

The New Zealand Dollar rallied by around 130 pips against Sterling yesterday thanks to an optimistic report showing that the nation ran a trade surplus of NZ$56 million in January after six months of deficit. The encouraging report allowed the ‘Kiwi’ to appreciate even though US data weighed on demand for other perceived riskier assets.

Data Released Today

EUR German Consumer Price Index (YoY) (FEB P)

USD Gross Domestic Product (Annualized) (4Q S)

USD Personal Consumption (4Q S)