Headlines
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China loosens monetary policy
– Curbs market chaos, stocks rebound.
•
GBP/EUR rises initially
– But slips back during the evening.
•
GBP/USD falls back through support levels
– US consumer confidence surges.
•
Pound close to eight-year high vs. ‘Loonie’
Sterling
Sterling retained the majority of its outrageous gains against the commodity bloc yesterday and clawed back some of its losses against the Euro as most equity markets rebounded following the ‘Black Monday’ routs. There were no key British data prints yesterday and there are none scheduled for release today either, which means that demand for the Pound will likely be driven by global market trends of risk appetite.
Euro
The Pound to Euro exchange rate rallied by just under two cents during the London session to erase some of Monday’s heavy losses. However, Sterling was forced to give back most of these gains during the evening.
The profit-taking yesterday morning suggests that some investors feel GBP/EUR’s three-cent decline this week has been overdone but the volatility during the evening means that further losses cannot be discounted.
In Germany it was announced that business sentiment rose from 108.0 to 108.3 at the start of August but markets were more concerned with European Central Bank Vice President Vitor Constancio’s comments on the possibility of further loosening. The ECB man stated that the bank remains ready to act if it feels that inflation is not likely to rise towards the 2.0% target in the medium term. However, Constancio asserted that policymakers have no reason to believe that the current asset purchasing scheme will not lift price pressures over the next 13 months.
Sterling attempted to break above the next resistance barrier yesterday against the US Dollar but bounced lower as US data came in positively.
GBP/USD fell sharply by around 90 pips and settled just below technical support during the New York session as US services printed optimistically at 55.2 and a key consumer confidence index jumped over 10 points to a seven-month high of 101.5. The sturdy American ecostats accentuated the ‘Greenback’s’ rally against the Pound yesterday but ‘cable’ could surge higher this afternoon if July’s US durable goods report shows a sharp slowdown from +3.4% to -0.4% as expected.
Sterling remained at elevated levels against the Canadian Dollar yesterday but the risk-correlated ‘Loonie’ managed to mount a temporary rally during the morning as efforts by the People’s Bank of China (PBoC) to curb the crisis boosted equity markets.
The PBoC announced an unscheduled 25 basis point cut in interest rates and a 50 basis point relaxation of its reserve ratio, which should help boost liquidity by releasing funds that were previously required to be held in reserve by law. The news sent stocks rallying around the world and gave commodities a shot in the arm but GBP/CAD is still trading at its highest level for almost eight years.
The Pound lost out on around -150 pips against the Australian Dollar yesterday morning as markets rebounded following the PBoC’s decision to loosen monetary policy. However, support for the ‘Aussie’ softened again during the evening.
At one point during the chaos of Monday’s session Sterling posted an intra-day high 1,000 pips above its opening level so it was fairly understandable to see GBP/AUD cool off a little yesterday. Nevertheless, Sterling is still sitting at extremely attractive levels against the ‘Aussie’, levels not reached since 2009.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate softened by around two cents yesterday but, remarkably, remains seven cents stronger than it was at the beginning of the week. The announcement of lower reserve requirements and lower interest rates in China helped set off a rebound in risk-sensitive assets but GBP/NZD still remains close to its lowest level for six years.
Data Released Today
09:30 GBP BBA Loans for House Purchase (JUL) 46000
13:30 USD Durable Goods Orders (JUL) -0.4%