By Jon Beddell
Foreign Currency Market Update – GBP / CAD Update
UK industrial production fell 1.2% on the year in figures released last week, compared to expectations of no change. That was largely accounted for by a 1.7% fall in the month of April. Interest rates were kept on hold in perhaps the least sensational BoE announcement in recent times. Everyone is now expecting rates to remain sharply unchanged for the next few months. We won’t know how the voting went until June 22nd when the minutes are released. There will likely be a further shift toward inaction with the departure of hawk Andrew Sentance.
Inflation data out yesterday showed a moderation in both retail prices (up 5.2%) and core price inflation (up 3.3% compared to 3.7% last time), both figures being below expectations. This didn’t really dent Sterling because no one was expecting the Bank of England to raise interest rates anyway.
The Canadian dollar had a good week, starting after a sharp rise in a purchasing managers index on Monday. Things continued to go the Loonie’s way despite lower than expected building permits granted and housing starts. Investors were more focused on the weak pound, and CAD rallied strongly after both the BoE and ECD kept interest rates on hold.
The technical outlook favours a move back down to trend support around 1.57. Sterling found stern resistance at 1.6150 last week, just as it did on our last attempt at this level back in February. The negative reaction and last week’s strong downside momentum suggests we will continue to trade lower until we find support. The trend line has been reliable over the last year, and this kicks in at 1.57, so we will have to review the situation there.