Latest currency report

An improving non-farm payrolls employment report helped spur global stockmarkets on Friday. Sentiment-driven currencies such as the Australian and New Zealand dollars benefited amid hopes of a brighter global economic outlook. 

The pound reached intra-week highs of US$1.5883 versus the US dollar, a high not seen since November. However, the dollar pared some losses after Friday’s employment report. The US economy created a further 243,000 jobs in January, adding to gains made in November and December and easing the pressure on the Federal Reserve to take steps to help the economy.

Continuing delays in agreeing the latest Greek bailout prompted further euro uncertainty last week, helping the pound gain over a cent versus the single currency. Successful government bond auctions for both Germany and Portugal along with positive German manufacturing data buoyed the euro to mid-week highs of €1.1887. However, roles were soon reversed as attentions turned to the problems facing peripheral European economies. 

Protracted talks between Greece and its private creditors continued throughout the week with no conclusive outcome weighing on the euro’s performance. The euro’s woes were compounded further as the Organisation for Economic Co-operation and Development (OECD) confirmed the planned €130 billion additional funding package would be insufficient, with international debt inspectors reported to have found a €15 billion ‘black hole’ in Greece’s public finances. Pressure mounts as Greece is required to pay €14.5 billion to current bond holders in mid-March.  

Improved UK manufacturing data boosted the pound mid-week. Helped by rising orders, output and easing cost pressures, January’s manufacturing activity reached its highest point since April last year. Mortgage approvals data also rose during December, suggesting the pressure on the UK housing market is starting to ease. 

Buoyant commodity prices helped the Australian dollar limit losses in the wake of relatively poor data. Australia’s housing price index dipped during the fourth quarter of 2011, whilst building permits data also declined in December. The Canadian economy stumbled in November, with its Gross Domestic Product (GDP) shrinking 0.1%. However, the disappointing result had a muted effect on the Canadian dollar as it finished the week almost half a cent better against the pound. Helped by buoyant investor sentiment and a rise in building permits, the New Zealand dollar hit intra-week highs of NZ$1.8871 against the pound. Sterling’s value fell below 12 South African rand for the first time since September 2011. Improving demand for the comparatively high-yields available from South Africa’s government bonds helped boost the rand.

The week ahead
Euro attentions will remain firmly on the efforts of European leaders to agree a sustainable resolution to the Greek debt crisis, with further delays likely to hinder the euro. German industrial production data will be released on Tuesday at 11.00am. The European Central Bank’s (ECB) interest rate announcement is due at 12.45pm on Thursday. The last meeting saw ECB President Mario Draghi leave interest rates on hold at 1.00%. However, the euro could come under further selling pressure if the ECB is forced to cut rates once more in an effort to ease borrowing costs for ailing economies. German inflation data will follow on Friday at 7.00am.

The Bank of England’s latest policy meeting (Thursday, 12.00pm) will be a major interest for sterling this week. With the Bank’s latest round of asset purchases having expired, the pound could suffer if policymakers opt to expand QE again. The latest indicators of the UK economy’s health will include manufacturing and industrial production data (both due on Thursday at 9.30am), whilst producer price inflation data will follow on Friday at 9.30am.

With US economic data releases being relatively thin on the ground, the US dollar will likely take its direction from global stockmarkets this week. US consumer credit data will be released on Tuesday (20.00pm). Mortgage applications data is scheduled for Wednesday at 12.00pm, with wholesale inventories data to follow on Friday (15.00pm).

Commodity price trends will remain pivotal to commodity-led currencies such as the Australian and Canadian dollars, as well as the South African rand. Both Swiss franc and New Zealand dollar interests will hope for better-than-expected employment data (Wednesday, 6.45am & 21.45pm, respectively). Swiss consumer price inflation data is also likely to affect the franc in Friday’s release at 8.15am. The Australian dollar’s attentions will turn to the Reserve Bank of Australia’s latest interest rate decision meeting on Tuesday (3.30am). The Canadian dollar could benefit if Wednesday’s housing construction starts data prove to be better-than-expected. The Indian rupee could benefit if its economy showed strong growth in Tuesday’s release of Gross Domestic Product data.