FTSE Resilient to Stock Sell-Off on Iranian Oil Prospects
Economic sanctions limiting Iran’s oil production were lifted on Saturday, meaning that the country is now free to export more crude. This could see Iranian oil production increase from 2.9 million barrels per day to 3.6 million barrels per day. The prospect of even more oil flooding the market has forced Brent crude down below the key $30 per barrel mark. The current price of $28.50 is nearly $10 below the level used by the Bank of England in its stress tests to measure the financial resilience of the UK’s biggest lenders.
Stock indexes in the Gulf States plummeted as a result of the lifted sanctions, with more than -£27billion wiped from the value of shares. However, it seems that the FTSE has been able to weather the storm, rising 0.6% in the first 30 minutes of trading.
Pound Sterling has steadily declined over the past week, driven lower by dwindling investor confidence in a Bank of England (BoE) rate hike and an increasingly pessimistic outlook for 2016. Meanwhile, the US Dollar has been strong overall, although expectations of more rate hikes have been curbed slightly, while European policymakers have suggested that monetary policy might not be loosened any further.
GBP/EUR Exchange Rate Falls During Volatile Trading Week
The UK economy was revealed to be in worse-than-expected shape towards the end of 2015 after figures this week showed poor Industrial Production and Manufacturing Production in November and sluggish retail sales in December. Industrial Production fell from 1.7% to 0.9%, while manufacturing activity accelerated its decline, falling to -1.2% from -0.8%. Retail Sales managed to grow just 0.1% year-on-year (YoY).
The focus of the week was mostly on Thursday’s interest rate decision by the Bank of England (BoE). No action was expected, but the Pound was still softened when the Monetary Policy Committee (MPC) left interest rates on hold. Ian McCafferty remained hawkish, but the dovish meeting minutes saw expectations of the first rate hike pushed back even further.
Conversely, the Euro was strong at the end of the week thanks to comments from European Central Bank (ECB) members, who told Reuters that they are disinclined to loosen Eurozone monetary policy any further. Despite the slowdown, policymakers believe that inflation will recover towards the target level once the storm of Chinese fears and oil prices softens.
GBP/USD Exchange Rate Softened Despite US Rate Hike Setbacks
Pound Sterling gradually lost ground to the US Dollar over the course of the week. The ‘Buck’ (USD) remained strong, although speculation over the quantity and pace of interest rate hikes dented progress somewhat. The worsening global conditions caused many to question whether the Fed’s target of four interest rates increases over the course of the year was too optimistic. Speculation increased when several Fed members made comments that were surprisingly dovish, perhaps in an attempt to curb enthusiasm.
A recent poll from Reuters has shown that economists now predict that there will be three rate hikes during the course of the year, although other surveys have found that the chances of the US entering a recession in 2016 are at the highest for three years at 17%, with 80% of economists identifying downside risks to the US economy.
Advance Retail Sales performed as expected during December, falling -0.1% after last month’s increase of 0.4%.
Pound Sterling, Euro and US Dollar Forecasts
The coming week will be a busy one for data. The UK Consumer Price Index is due on Tuesday, as is the German ZEW Economic Sentiment Survey. US inflation data follows on Wednesday. The ECB will make their next decision on interest rates on Thursday. Outside of the headline data releases there are plenty of other pieces of data being released which could move exchange rates.
Current GBP, EUR, USD Exchange Rates
The Pound Sterling to Euro (GBP/EUR) exchange rate is currently trading around 1.3105, while the Euro to Pound Sterling (EUR/GBP) exchange rate is trending around 0.7631.
The Pound Sterling to US Dollar (GBP/USD) exchange rate is currently trending in the region of 1.4344, with the US Dollar to Pound Sterling (USD/GBP) exchange rate trading around 0.6972.