Pound continues to fall against Australian dollar | Eurozone slipped back into deflation

Currencies Direct March 7th 2016 - 2 minute read

Pound continues to fall against Australian dollar

The pound rose steadily last week, hitting a two-week high versus the US dollar despite a batch of soft economic data. Doubts about the UK’s future in the European Union (EU) continue to underscore any price action in the pound-dollar pair, but odds the Federal Reserve is shying away from raising rates in March helped lift sterling. The pound added two cents for the week, even as data on the services, manufacturing and construction sectors showed growth slowing markedly in February. Sterling also rose against the euro, rising by around 1% for the week after inflation figures for the eurozone turned negative. The pound continued its fall against the Australian dollar, reaching its weakest in 11 months by the end of the week.
After last week’s disappointing manufacturing PMI, investors are looking to see whether there is any better news from the official factory output report on Wednesday. But traders will be mainly focused on what Bank of England governor Mark Carney has to say on Tuesday. He is due to testify in Parliament, along with deputy governor Jon Cunliffe, on the UK’s membership of the EU.

USD ends week broadly lower against peers

The US dollar was a little softer last week, as markets tamed bets the Federal Reserve is ready to raise rates again soon. A mixed non-farm payrolls report on Friday spurred a bit of dollar selling, ensuring the Greenback ended the week broadly lower against its major peers. The euro added about 0.5%, while the British pound was up around 2% for the week. The dollar did gain a little versus the yen, but remains near to its lowest since October 2014. Overall, the dollar index, which measures the Greenback’s strength versus other major currencies, was down 0.85% over the five sessions.
Data is very thin on the ground. But Federal Reserve governors Lael Brainard and Stanley Fischer are both due to speak at an event in Washington later on Monday. Friday sees the release of data on import prices, which help to shape the outlook on inflation.

Eurozone slipped back into deflation

Figures released last Monday showed the eurozone slipped back into deflation in February. Prices slipped by 0.2% last month from a year earlier, the first negative reading since September and a red flag for the European Central Bank (ECB) ahead of its meeting on Thursday. The euro had a mixed bag, with the currency sliding 1% versus the pound but edging higher against the slightly softer dollar.
Focus this week is on the ECB and what it measures it will take to further stimulate growth and inflation in the 19-nation euro area. Markets are primed for more easing, which will likely take the form of another cut to the deposit rate, but are cautious after the bank disappointed in December by doing a lot less than had been expected.

Canadian dollar rises to strongest in 3 months versus USD

Canada’s dollar rose to its strongest in three months versus its US counterpart, as the commodity-related currency enjoyed support from stronger oil prices. Meanwhile, the nation’s trade deficit narrowed to C$0.66 billion in January from C$0.63 billion in December, while data showed the US trade deficit widened. Investors are now looking ahead to Wednesday’s interest rate decision from the Bank of Canada.

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