James Skinner

The Canadian Dollar dug its heels in against some currencies to end a week of underperformance on Friday after retail sales data suggested economic resilience ahead of the festive period, though not quite enough to dispel uncertainty about a looming Bank of Canada (BoC) interest rate decision.

The UK economy came to a standstill in the final quarter of last year, which has averted a technical recession for the time being but done little dispel the gloom in the air or the sense of impending doom evoked by economic forecasters who say the UK is still a long way from out of the woods.

UK retail sales are likely to surprise significantly on the upside of the market consensus on Friday, according to Barclays’ UK Spend Trends 2.0 indicator, in a January outcome that would substantially reverse December’s decline and which could have supportive implications for Pound Sterling.

The Pound to Dollar exchange rate tumbled below 1.20 in the penultimate session of the week after rising producer prices reminded of ongoing inflation risk in the U.S. and the number of new housing developments starting fell back to its lowest since the 2020 ‘lockdown.’

The Bank of England (BoE) would risk going too far if it continues to lift Bank Rate as fast as it has in recent months, its chief economist Huw Pill has said, suggesting that he too could favour a return to more conventional sized increases, if any, as a response to lingering inflation risks up ahead.

The Euro to Dollar exchange rate placed the single currency close to the bottom of the G10 bucket for the period in the final session of the week but would make for a worthwhile buy on any dips below the nearby 1.06 handle, according to strategists at Credit Suisse. 

A range of indicators suggests the UK economy has performed better than been feared just a few short months ago and there are some reasons for thinking the outlook is not quite as bleak as it was but all of this still leaves HM Treasury beset by fiscal challenges, according to Oxford Economics.

The South African Rand underperformed many other comparable currencies in adverse international market conditions ahead of the weekend and following a “greylisting” decision from the Financial Action Task Force (FATF).

The Pound to South African Rand exchange rate rally has stalled at more than two-year highs in recent days but it could remain elevated near those levels if domestic economic difficulties lead the South African Reserve Bank (SARB) to adopt an “incrementally more dovish” stance on Thursday. 

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