Subdued Friday and a quiet Monday for currency markets

Markets struggled for direction on Friday, with the dollar ending the week as the best performing currency ahead of this week’s busy economic calendar.

Previous Day's Market Highlights

Currency markets struggled for direction on Friday, with most major pairings remaining confined to their well-defined trading ranges as a lack of data and news flow gave investors little food for thought. The pound traded modestly weaker, losing around 0.2%, as market participants took some risk off the table ahead of possible weekend Brexit headlines. In contrast, the Swiss franc and Japanese Yen gained slightly as a modest risk-off tone crept into markets with no sign of a breakthrough emerging on either of the key geopolitical issues – Brexit and the US-China trade war.
 
The only notable economic data released was Canadian labour market figures for January which beat market expectations, causing the loonie to gain by around 0.5%. Despite a slight uptick in the unemployment rate to 5.8%, a strong jump in employment and the highest wage growth since November spurred a rally in the Canadian dollar. The Canadian economy has now recorded its strongest 5-month run of hiring in 16 years, potentially allaying some fears of a domestic slowdown.
 
Over the course of the week, the Australian and New Zealand dollars were the worst performing major currencies with their performance due to the RBA opening the door to the possibility of a rate cut and risk-off sentiment beginning to rear its head. In contrast, the US dollar ended the week as the best performing major with the dollar index chalking up its biggest weekly gain in six months and continuing its longest daily winning streak for over two years.

In other markets, equities in both Europe and the US fell by around 0.5% on Friday as there remained no sign of a US-China trade deal being struck before the March 1st deadline and reports emerged that President Trump had no plans to meet his Chinese counterpart before the deadline. Meanwhile, oil prices traded flat to close out the week though WTI was on track for a 4.5% decline over the course of the week – its biggest drop this year while German 10-year yields briefly fell to their lowest levels in over two years at 0.11%, likely adding to headwinds facing the euro.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1405 1.1604 1.1127 4.11%
GBP/USD 1.2913 1.3218 1.2667 4.17%
EUR/USD 1.1319 1.1570 1.1289 2.43%
GBP/AUD 1.8199 1.8522 1.7639 4.77%
GBP/NZD 1.9104 1.9426 1.8701 3.73%
GBP/CAD 1.7155 1.7498 1.6835 3.79%

Today's Market Highlights

Investors’ focus is today likely to rest with UK GDP figures for the final quarter of 2018, released at 9:30 this morning. Expectations are for growth to slow from 1.5% to 1.4% on a year-on-year basis and from 0.6% to 0.2% on a quarter-on-quarter basis with political uncertainty and a global economic slowdown likely to be the primary causes of a softening of economic activity. Also released will be industrial and manufacturing production figures along with trade balance data. While Brexit is still front and centre as the driving force behind the pound, especially ahead of this week’s planned Parliamentary vote, a worse-than-expected set of GDP figures would do nothing to help sterling find support.
 
Elsewhere, the economic calendar is sparsely populated today however the remainder of the week looks set to be busier with highlights including CPI inflation from the UK and US as well as GDP figures from Japan and the eurozone. The latter is expected to command significant attention, with figures from Germany of most importance due to the risk of Europe’s largest economy falling into a technical recession. The Reserve Bank of New Zealand (RBNZ) also hold their first policy meeting of the year tomorrow, with a shift to a more cautious stance likely with growth remaining weak and signs of slack in the labour market persisting.

Finally, the Fed’s Bowman and ECB’s de Guindos are both scheduled to speak today, with any comments likely to remain in line with both central banks’ recent cautious stance. Of more interest to investors is likely to be Fed Chair Powell’s speech tomorrow in Mississippi where market participants will closely examine any comments, particularly those relating to the Fed’s balance sheet run-off.

Today's Economic Calendar

Time Currency Release Consensus Previous
9:30am GBP GDP - Q4 18 (y/y) 1.4% 1.5%
9:30am GBP GDP - Q4 18 (q/q) 0.2% 0.6%