Headlines
UK GDP confirmed at 0.7% –
BoE Gov Carney talks up Q1 2016 rate hike prospects.
GBP/EUR remains softer –
Despite talk of further ECB easing.
GBP/USD close to two-month low –
Fed policymakers dampen September rate hike bets.
Pound rallies vs. ‘Kiwi’ Dollar –
New Zealand business confidence plunges in August.
Sterling
On Friday British second quarter GDP growth was confirmed at 0.7%. The result didn’t unsettle traders because it was widely predicted beforehand but the details of the report did provide a little food for thought. A robust 0.7% rise in consumer spending showed that the recent return of rising real wages had positively impacted domestic spending patterns and a hefty 2.9% increase in business investment suggested that uncertainty in the build-up to the general election didn’t have a material impact on economic output. But traders were less assured that the 1% that net trade contributed to Q2 growth would continue in Q3, with weakness in export markets such as the Eurozone and China and the recent appreciation in the Pound cited as potential downward forces on trade in Q3.
Over the weekend Bank of England Governor Mark Carney attempted to downplay talk that volatility in China would lead to a delay in the normalisation of interest rates by confirming that the bank still intends to begin raising rates at the beginning of 2016. He argued that Britain is largely insulated from the crisis in China and conveyed confidence that underlying core consumer prices would begin to rise over the next few quarters.
Euro
The Pound to Euro exchange rate rose by around 100 pips on Friday as speculative investors reacted to dark mutterings across Europe that the latest leg of the commodity crash could negatively impact price pressures in the currency bloc and force the European Central Bank to bolster its quantitative easing programme. However, the single currency clawed back most of its losses on Bank Holiday Monday as reduced trading volumes allowed the Euro to rally on a slightly better-than-anticipated Eurozone CPI report, which showed that consumer prices rose from 0.1% to 0.2% in August and that core inflation remained at 1.0% compared to forecasts of a slowdown to 0.9%.
British manufacturing data due for release this morning is expected to reveal that output rose at a rate of 52.0 in August but Sterling is not expected to gain support from the PMI report unless factory output prints considerably higher than the median market consensus.
US Dollar
Sterling is currently trading at a near-two-month low against the US Dollar despite talk from central bankers indicating that US interest rates may not rise in 2015 and positive rhetoric from BoE Governor Mark Carney suggesting that British rates are still set to increase in early 2016.
Federal Reserve policymaker Narayana Kocherlakota stated on Friday that he doesn’t see a 2015 rate increase ‘as being appropriate’ unless there is a major change in economic output. However, the ‘Greenback’ managed to appreciate by around half a cent against the Pound as markets favoured the safety of the world’s premier reserve currency. Another Fed official, Stanley Fischer, poured cold water on hopes of a September rate hike but admitted that it was still a possibility despite the negative impact of China’s recent market turmoil.
Canadian Dollar
The Pound to Canadian Dollar exchange rate shed 200 pips yesterday as investors locked in profit from the recent strong Sterling gains against the ‘Loonie’. However, with oil prices tumbling and expectations of another rate cut from the Bank of Canada growing, it is entirely possible that the Canadian currency could weaken again over the next few weeks.
This afternoon Canadian GDP is tipped to rebound from a -0.2% contraction in May to post 0.2% expansion in June. But if the GDP report comes in lower-than-anticipated we could see demand for the ‘Loonie’ collapse as rate cut worries return to the fore.
Australian Dollar
The Pound rose by around 70 pips against the Australian Dollar yesterday as markets reacted to the upbeat comments from BoE Governor Mark Carney on the prospect of a rate hike at the beginning of next year.
New Zealand Dollar
Sterling appreciated by around 350 pips against the ‘Kiwi’ Dollar yesterday on the back of a dud New Zealand business confidence report. The sentiment sapping print showed that confidence among business owners sunk from -15.3 to -29.1 in August, which compounded the risk-sensitive Antipodean currency’s woes as Chinese growth concerns also weighed on demand.
Data Released Today
09:30 GBP Mortgage Approvals (JUL)
09:30 GBP Markit UK PMI Manufacturing s.a. (AUG)
10:00 EUR Euro-Zone Unemployment Rate (JUL)
13:30 CAD Gross Domestic Product (MoM) (JUN) (JUN)
13:30 CAD Gross Domestic Product (YoY) (JUN) (JUN)
15:00 USD ISM Manufacturing (AUG)