Disappointing UK GDP data sees GBP/USD fall

United States Dollar:

Yesterday was a positive start to the week for sterling, with GBP/USD pushing higher over the course of the day. After dipping below 1.50 at the end of the week, it managed to regain the handle and briefly was back above 1.51. The pound was supported by comments made by MPC member Kristin Forbes, who said rates could rise sooner in the UK should inflation pick up faster than expected. Cable was also supported by relative market stability on the back of Syriza’s victory in the Greek general election. This morning has seen the UK’s first estimate of Q4 GDP released, printing a lower than expected 0.5% growth q/q. The reading showed a strong annualised reading of 2.7% growth, however cable has dipped back below 1.51 on the news. The chances of a UK 2015 rate hike seem slimmer than ever now. Later today sees durable goods data from the States with a reversal of last month’s negative reading expected. We also have US new home sales at 3pm.

We expect a range today in the GBP/USD rate of 1.50 to 1.5190.

Euro:

The big geopolitical news over the weekend was the far-left Syriza party’s victory in the Greek general election. The party has promised to end the pain endured by its people after five years of austerity that has left a third of the population living in poverty. It has promised to renegotiate the terms of its bailout in an effort push up living standards and to try and sustain economic growth. After some early selling of the euro, which pushed EUR/USD briefly below 1.11 in the Asian session, the euro and the financial markets soon recovered and the expected market turmoil didn’t really materialise. February will be a key month as the new administration meets with EU officials to try and come to some agreement with the IMF, ECB and European Commission over relaxing the current terms of its €240B bailout. If the situation deteriorates then expect the euro to remain under pressure. EUR/USD currently trades at 1.1320 with GBP/EUR at 1.3326.

We expect a range today in the GBP/EUR rate of 1.33 to 1.3445.

Aussie and Kiwi Dollars:

AUD/USD remains under .80 and currently trades at .7950. After the shock move from the Bank of Canada last week to lower interest rates it appears the markets see a rate cut from the RBA as more likely given the commodity driven fall in inflation around the world. Overnight saw a subdued NAB business confidence reading for December, which made similar reading to previous reports. The authors expect Australian interest rates to drop to 2.0% from its current 2.5% by year-end. NZD/USD currently trades .7435, GBP/AUD is at 1.8985 and GBP/NZD is at 2.0289.

We expect a range today in the GBP/AUD rate of 1.8910 to 1.9055.

We expect a range today in the GBP/NZD rate of 2.0125 to 2.03.

Data releases for the next 24 hours:

AUD: CPI q/q

EUR: ECOFIN Meetings

GBP: No data

NZD: No data

USD: Core Durable Goods Orders m/m; Durable Goods Orders m/m; New Home Sales