Headlines
• BoE’s Haldane strikes dovish tone –
Mentions possibility of rate cut.
• GBP/EUR rallies –
On ECB easing bets.
• ‘Cable’ hits three-week high –
But Sterling gives back gains.
• Tsipras re-elected in Greece –
Small boost for Euro.
Sterling
Most Sterling pairs continued to fluctuate on Friday in reaction to the Federal Reserve’s decision to leave rates on hold during September. This meant the Pound was able to rally initially versus the US Dollar and the Euro but lost a little bit of ground against the commodity currencies – the Canadian, Australian and New Zealand Dollars.
Most investors pushed back their Bank of England rate hike bets following the Fed’s dovish statement because the general consensus is that the UK central bank will not begin its hiking cycle until after the Fed. However, BoE policymaker Andy Haldane suggested that UK interest rates might even go down before they go up, citing soft long-term inflation prospects and the possibility of weakness in emerging markets worsening. Traders generally chose to overlook Haldane’s remarks because he is recognised as being the most dovish of the monetary policy committee members at this moment in time.
Euro
The Pound to Euro exchange rate rallied by around a cent on Friday as investors continued to bet that the latest dovish statement from the Federal Reserve, which caused the Euro to strengthen against the US Dollar, would persuade the European Central Bank to loosen policy further in order to weaken the single currency and boost competitiveness within the currency bloc.
On Sunday evening it was announced that Alexis Tsipras of Syriza won enough votes at the latest snap elections to form a government and lead Greece through the difficult austerity measures that he agreed with international creditors in exchange for much-needed financial aid. Tsipras won around 35% of the vote, giving him a sizable lead over his nearest rival, Vangelis Meimarakis of New Democracy, who only received 28%. The vote was far less close than opinion polls had suggested, which gives Tsipras a strong mandate to implement the next round of economic reforms. Markets weren’t hugely worried prior to the election but the positive outcome was seen as a potential pitfall dodged and this caused the single currency to appreciate by around 30 pips.
US Dollar
Sterling struck a fresh three-week high against the US Dollar on Friday as the negative impact of Fed Chairwoman Janet Yellen’s latest policy decision continued to weigh on demand for the ‘Greenback’.
However, profit-taking kicked in during the evening and GBP/USD actually closed for the day down by around half a cent. It seems that although BoE policymaker Andy Haldane’s dovish remarks on the possibility of lower interest rates were largely ignored, they did prevent investors from sending ‘Cable’ through a key resistance barrier.
Canadian Dollar
Sterling lost ground to the Canadian Dollar on Friday as investors took a punt on riskier assets in light of the Federal Reserve’s decision to keep the cheap money tap running. However, uncertainty regarding the global economy and fears that crude oil prices could fall further caused the ‘Loonie’ to give up its gains by the end of the day.
Data wise, Statistics Canada confirmed that inflation remained at 1.3% during August, which matched analysts’ estimates and therefore had a limited impact on demand for the Canadian Dollar.
Australian Dollar
The Pound to Australian Dollar exchange rate receded by around half a cent on Friday as a tepid rise in risk sentiment bolstered the appeal of the high-yielding Antipodean currency. However, concerns over the slowdown in China and in emerging markets meant that the ‘Aussie’ Dollar’s gains were fairly muted.
New Zealand Dollar
Sterling plummeted by around -180 pips against the New Zealand Dollar on Friday as a combination of the Fed’s decision to leave interest rates at rock-bottom levels and a rise in dairy prices at the latest auction reflected favourably on the ‘Kiwi’ Dollar.
Data Released Today
15:00 USD Existing Home Sales (MoM) (AUG) Medium -1.6%