Chinese economic data boosts global outlook, sinks Euro and Yen
14/Apr/2016 • Currency Updates•
The Euro fell across the board on Wednesday, reaching its weakest position against the US Dollar in over two weeks. This was due to weak industrial production figures in the Eurozone and impressive economic data in China which drew investors back into riskier assets.
Trade figures out of China provided a welcome boost to the country’s economic outlook, while soothing fears of a global slowdown. Exports in China surged by 11.5% in the year to March, well above estimates, and a considerable improvement on the 25% decline recorded in February.
The news caused investors to pull out of safe-haven currencies, with the Euro, Japanese Yen and Swiss Franc ending the session as three of the worst-performing major currencies in the world.
Yesterday’s decline in the single currency was made even more severe by a particularly worrying set of industrial production figures in the Euro-area that fuelled concerns regarding the health of the Eurozone economy. Industrial output fell by the most in 18 months in February, giving up much of the increase seen earlier in the year.
To us this highlights the stark divergence in economic performance and monetary policy stances between the Eurozone and US, which should keep the Euro under heavy pressure in 2016.
In the UK, Sterling rallied against the Euro ahead of today’s Bank of England meeting. The US Dollar also advanced, with investors overlooking softer-than-expected retail sales figures.
Meanwhile, the extremely volatile Brazilian Real sunk more than any other currency yesterday amid a further escalation in the political crisis that continues to plague South America’s largest country.
The Bank of Canada left its key interest rate unchanged, at 0.5%, while delivering an upbeat assessment of the Canadian economy.
Major currencies in detail:
Sterling traded within a narrow band against the US Dollar yesterday, ending 0.15% lower.
Focus in the UK today will undoubtedly be on the Bank of England’s monetary policy meeting and interest rate announcement at midday. We don’t expect any significant new information, given the limited time in between the March and April meetings.
We anticipate an unchanged vote at 9-0 against an interest rate hike, although there remains a very small chance that one of the more dovish members, Vlieghe or Haldane, will vote for a cut.
Mostly positive economic data in the past few weeks could lead to a more hawkish tone in the minutes, although concerns regarding the June EU referendum will likely dominate. The referendum continues to weigh heavily on GBP, affecting UK companies liabilities in foreign currency.
The Euro was slammed across the board on Wednesday, ending 0.6% lower against the US Dollar and 0.5% down versus Sterling.
Yesterday’s industrial production figures were particularly poor. Output in the sector registered its largest decline in 18 months, falling by 0.8% in the month to February and leading to a meagre expansion of just 0.8% on a yearly basis, well below forecasts. A decline in recent business surveys and confidence indices suggests that there may be further weakness ahead.
The inability of the Eurozone economy to register growth of even 2% looks set to weigh on the Euro this year, especially after the IMF revised its Euro-area growth forecast lower this week, to just 1.5%.
Today’s inflation data is expected to remain unrevised and still in negative territory at -0.1% on an annualised basis.
A sigh of relief among financial markets yesterday after strong economic data was released in China. The news provided a boost to the US Dollar, which ended 0.5% higher against its major peers.
Investors overlooked underwhelming economic data in the US yesterday. Retail sales, a key gauge of consumer spending in the US, fell by 0.3% in the month to March following a revised flat reading in February.
Sales have yet to post positive growth this year amid slowing wage gains and weakness in the global economy. Excluding the volatile automotive component, sales rose by 0.2%, although still undershot the 0.4% forecast.
Producer prices also remained weak, falling back into negative territory at -0.1%. The PPI has failed to surpass a zero reading ever since the beginning of 2015.
Inflation figures in the US today are expected to show a modest improvement when released at 13:30 UK time. A speech from Federal Reserve member Dennis Lockhart this afternoon could also prove a market mover.
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