The Pound outperformed most of the majors yesterday afternoon as soft data out of the Eurozone and the United States turned investor sentiment sour.
Sterling had initially struggled to find support due to the shift in sentiment towards interest rates that was brought about by Bank of England Governor Mark Carney’s dovish inflation report on Wednesday. Carney poured cold water on early rate hike bets by stressing that there is still an uncomfortably high degree of slack in the UK labour market. The Pound found itself spiraling lower versus most of its peers in the aftermath of the central bank report.
However, data released yesterday helped Sterling erase some of the losses that were sustained on Wednesday.
The Pound to Euro exchange rate (GBP/EUR) appreciated by around half a cent yesterday and reached a daily high of 1.2276 in the afternoon as investors reacted to a disappointing Eurozone growth report. Compared to expectations of 0.4% growth, the currency bloc only managed a meagre expansion of 0.2% in the first quarter.
German GDP accelerated to a stronger-than-anticipated 0.8% but other core countries saw economic output slow and in some cases contract. French GDP stagnated at 0.0%, the Italian economy shrunk by -0.1% and the Netherlands suffered an abysmal contraction of -1.4%. The single currency weakened as bets increased for the European Central Bank to loosen monetary policy in June.
The Pound to US Dollar (GBP/USD) exchange rate is trading around 1.6793.
The mood of risk aversion amongst financial markets was exacerbated during the afternoon when data from the United States showed that industrial production shrunk by -0.6% in April. The dismal reading shocked traders who had been primed for a score of 0.0%.
To add to the woes of the US economy (and the global economy for that matter) a downward revision to March’s factory orders figure from 1.1% to 0.9% reflected negatively on the world’s largest economy. The downgrade means that US growth – previously estimated at an annualised rate of 0.1% – actually shrunk by -0.9% in the first quarter of the year. The Pound to US Dollar exchange rate rose to 1.6800 in reaction to the soft figures.
The combination of weak ecostats in the Eurozone and the United States also had a considerable impact on the rest of the Sterling crosses. With global growth prospects receding investors took it upon themselves to pull out of riskier assets. This allowed the Pound to claw back some of its losses from earlier in the week against the Canadian Dollar, the Australian Dollar and the New Zealand Dollar.
The Pound to Canadian Dollar exchange rate grew by around a quarter of a cent and reached a daily high of 1.8299.
The Sterling to Australian Dollar exchange rate surged by almost a cent and reached a daily high of 1.8013.
Finally, the Pound to New Zealand Dollar exchange rate appreciated by almost a cent and reached a daily high of 1.9467.
Comments are closed.