February was a tough month for the British pound and a good month for the Japanese yen and the Canadian dollar. The British pound collapsed on Brexit fears while the Japanese yen surged on safe-haven demand. The Canadian dollar strengthened in February as a surge in oil prices supported the risk-sensitive commodity currency.
The former plunged 1.80% against the U.S. dollar in February, extending its losses to near 10% since November 01. The [B]British pound [/B]remained near a seven-year low against the dollar while it plunged more than 8% vs the Japanese yen in February. Furthermore, it lost more than 250 pips against the euro and it is on track to snap a three-month losing streak with a near 3.6% losses this month. The pound collapsed against its G10 peers after London Mayor Boris Johnson said he will campaign for Britain to leave the European Union in a June referendum. It should be noted that the British people will vote on the Brexit issue 23rd June 2016.
The [B]Japanese yen[/B] rose - alongside with the precious metal - posting its longest run of monthly gains against the big three currencies (USD, EUR and Pound) since the financial crisis of 2008; excluding euro. The yen strengthened in February, as investors poured into the safe-haven assets, including the yellow metal – which is the best performing asset class of 2016.
Japanese yen strengthened against its G10 peers even after a U.S. report showed inflation rose the most in more than four years last month and the U.S. GDP increased at a 1% annual rate instead of the previously reported 0.7% pace. The yen’s rise comes also in the face of the BoJ’s move on January 28 to lower its key interest rates below zero, to minus 0.1% for the first time; when lowering policy rates it helps weaken a country’s currency.
The [B]Canadian dollar[/B] gained against most of its G10 counterparts in February as a surge in oil prices supported the risk-sensitive commodity currency. The Canadian dollar made a partial recovery in February against the U.S. dollar, wiping out the gains from the previous 2 months. The USD/CAD pair is now up 2.1% so far in 2016 and has risen in 7 of the past 8 weeks. Against the single currency, the Canadian dollar gained 1.50% in February, with the EUR/CAD to currently sit below the psychological level of 1.5000. The Canadian dollar is on track to snap a second consecutive negative month against the British pound, with a near 5% gains in February.
Oil prices rose for a third consecutive day adding more than 10% the last week of February while the medium-term outlook started to look more positive for the crude oil prices. UK Brent was up 2.70% in February, following 3 consecutive negative months (-30%) while the U.S. West Texas Intermediate (WTI) remained negative for the last 4 months, with losses to surpass 30%.
[B]THE WEEK AHEAD: Feb 29 – Mar 04[/B]
This week will be busy, with plenty of data to watch although the US Jobs report will be the main focus. The other highlight of the week will be the RBA interest rate decision and the Markit services/manufacturing PMIs. Eurozone’s flash CPI and unemployment rate are also important.
On [B]Monday[/B], we start the week quietly. The only noteworthy indicator that may have an effect on the market is Eurozone’s flash inflation rate for February. The market expects a decrease to 0.1% from 0.3% before yoy, as well as the core inflation rate, which is expected to decline slightly to 0.9% from 1.0% in January.
In UK, the mortgage approvals for January and other data regarding lending to individuals will be released. Going to US, the pending home sales for January will come out. Later in the second half of the trading session, Japanese employment report for January will be published. The unemployment rate is forecasted to remain unchanged at 3.3% as well as the jobs/applicants ratio at 1.27. The overall household spending yoy is expected to show an improvement to -2.8% versus -4.4% before. Overnight, the Reserve Bank of Australia will have its interest rate decision – no changes are expected. However, the rate statement will be eyed.
On [B]Tuesday [/B]morning, February’s final Markit Manufacturing PMIs for several countries will be released. In Germany and Eurozone as a whole, the manufacturing indexes are expected to meet the flash numbers of 50.2 and 51.0 respectively, while in UK, it is predicted a decrease to 52.2 from 52.9 prior. In US, the same index will be released later in the day and is expected to remain unchanged at 51.0 as well. The ISM manufacturing is expected to show an improvement of the sector to 48.8 from 48.2. In Eurozone, the unemployment rate id coming out but it is predicted to remain unchanged at 10.4%.
The other two spotlights of the day are the final Canada’s GDP for Q4 and the Fonterra’s Global Dairy Auction that is expected to affect New Zealand’s dollar. During the night, Australia’s GDP for Q4 is also coming out.
On [B]Wednesday[/B], the UK Construction PMI for February will be out and is expected to increase to 55.5 from 55.0 before. In US, the ADP Employment Change for February is expected to face a decrease to 185k from 205k before. Fed’s Beige book will be published as well.
On [B]Thursday[/B], the Markit Services PMIs will complete the composite indexes. Eurozone’s and Germany’s services sectors are expected to remain unchanged while in UK the sector’s index is predicted to decline to 55.1 from 55.6 before. The retail sales in the 19-nation union are expected to have slowed down in January to 0.1% from 0.3% mom. At the European noon, the Markit Services PMI for February and the ISM Non-Manufacturing PMI will be released.
On [B]Friday[/B], the most important indicator is the Non-Farm payrolls number. The US economy is expected to have added 195k jobs in February from 151k in January while the unemployment rate is forecasted to have remained at the record low level of 4.9% for one more month. The average hourly earnings are forecasted to have increased by 0.2% mom from 0.5% before.