Headlines
Pound claws back losses –
Sterling rallies across the board as week begins.
GBP/EUR rises 50 pips –
European investor sentiment hurt by China woes.
‘Cable’ rallies from four-month low –
Technical bounce ahead of BoE statement.
Sterling rallies 330 pips vs. ‘Kiwi’ –
Investors bet on RBNZ rate cut this week.
Sterling
The Pound staged a miniature revival against most of the majors yesterday ahead of this week’s key statement from the Bank of England. Sterling forward contracts suffered huge losses last week as investors pushed back their BoE rate hike expectations from the first quarter of next year to the third. Most analysts expect Thursday’s minutes report to show that policymakers are concerned by the crisis in China – concerned enough to delay talk of hiking interest rates in the UK.
However, if BoE officials voice concern but vow to stick with their plan to begin tightening monetary policy around the turn of the year then there is potential for large upswings in demand for Sterling versus nearly all of the other major currencies. The Pound’s rallies yesterday reflect this possibility but it is difficult to see GBP register any further significant appreciations in the run up to Thursday’s central bank statement.
Euro
Sterling strengthened by around half a cent against the Euro yesterday as sentiment towards the Pound warmed.
Across the channel in the Eurozone investor confidence printed at its lowest level for seven months during September in response to the market turmoil in China. The Sentix index fell from 18.4 to 13.6, which undershot analysts’ predictions of 16.0. However, a separate report showed that industrial production in Europe’s industrial motherland – Germany – rose at an annual pace of 0.5% in July, beating estimates of a 0.3% rise.
In Brussels EU farmers were given a €500 million aid package to help prop-up the farming industry, which has suffered recently due to falling milk and meat prices since the EU imposed a trade ban with Russia. Thousands of farmers from all over Europe, including Great Britain, turned up in cars, on foot and in tractors to get their point across to EU leaders. Riot police were left with egg on their face after the protest, which also saw water canons and flaming hay bells hurled in their direction.
US Dollar
Following ten days of consecutive declines against the US Dollar Sterling managed to register an appreciation against the ‘Greenback’ yesterday.
The Pound rebounded by around a cent from the four-month low GBP/USD struck on Friday afternoon as key technical support enabled the UK currency to strengthen. Last time ‘Cable’ bounced from this key support level (four months ago) Sterling went on to register 600 pips of gains in just ten days. To see history repeat itself traders will need to be treated to a very hawkish BoE minutes report, with multiple policymakers voting for higher rates in September and very little cautious talk regarding the economic meltdown in China.
It is more likely that we will see the UK central bank release a dovish statement and therefore the odds seem stacked in favour of GBP/USD retaining a softer exchange rate in the near term.
Canadian Dollar
Improved sentiment towards Sterling helped the Pound to Canadian Dollar exchange rate grow by over two cents during yesterday’s session. However, the majority of Sterling’s gains were not related to the UK economy, they were related to the latest slide in global oil prices. The value of Canada’s most lucrative export shrunk a further -2% on Monday as equity markets plunged -2.5% in China, which signalled that demand for the ‘black gold’ was likely to remain for the remainder of the year.
Australian Dollar
Sterling rose by around a cent against the Australian Dollar yesterday as headwinds from China spooked investors out of assets with large exposure to the Chinese dragon. The close trade ties shared between Australia and China mean that the ‘Aussie’ Dollar is often, as in this case, one of the worst hit currencies when things flare-up in the world’s second largest economy.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate has only touched higher peaks than it did yesterday in two days out of two thousand. Sterling appreciated by 330 pips to a near six-year high as increased volatility in China spurred investors to bet that the Reserve Bank of New Zealand will opt to slash interest rates from 3.00% to 2.75% on Wednesday evening.
Data Released Today
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (2Q P) Medium
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (2Q P) High