Headlines
• Pound enters week on bad run –
GDP revision & PMI reports on tap.
• GBP/EUR close to monthly low –
Despite ECB easing fears.
• ‘Cable’ strikes 4.5-month low –
Fed’s Yellen boosts rate hike bets.
• ‘Kiwi’ up on dairy payout –
Fonterra raises forecasts.
Sterling
The Pound put in a fairly dismal performance against the majors last week as investors pushed back their expectations for when the Bank of England will start hiking interest rates. Sterling declined against the Euro, US Dollar, Canadian Dollar and New Zealand Dollar and remained flat against the Australian Dollar.
Holders of the UK currency will be hoping for a more positive performance this week but there are only a few scheduled British data releases that are deemed significant enough to have a big impact on the Pound. The latest estimate of second quarter GDP is tipped to remain at 2.6% and therefore is unlikely to give Sterling a boost so markets will be looking for a decent manufacturing PMI report and upbeat construction figures to lift sentiment.
Euro
The Pound to Euro exchange rate remained close to a monthly low on Friday as an attempted Sterling rally petered out before midday.
Despite comments from European Central Bank President Mario Draghi suggesting that officials may loosen policy further over the next few months demand for the single currency is currently stronger than desire to invest in the Pound. This is largely thanks to dovish remarks from certain BoE policymakers that have prompted speculative investors to push back their rate hike bets until October of next year.
The scandal in Germany concerning Volkswagen emissions continues to cloud market sentiment towards the German carmaker but the general consensus among analysts is that VW will be able to overcome the debacle and that German GDP will not suffer any sizable dip in performance related to the crisis.
US Dollar
Sterling slid to a four-and-a-half-month low against the US Dollar on Friday as a hawkish message from Federal Reserve Chairwoman Janet Yellen combined with strong domestic data to bolster the appeal of the ‘Greenback’.
‘Cable’ declined by around a third of a cent in reaction to the Fed Chief’s comments on the likelihood of a rise in interest rates before the end of the year. Yellen’s hawkish statement cheered traders, who had been worried that volatility in China was causing serious damage to the global economy. The ‘Greenback’ was also boosted by the latest revision to second quarter GDP, which saw output upgraded from 3.7% to 3.9%. Service sector output came in at 55.6 as expected and US consumer confidence rose by more-than-expected from 85.7 to 87.2.
GBP/USD is currently hovering just above key technical support but if Sterling falls through this level then ‘Cable’ could fall by a further two cents.
Canadian Dollar
The Pound lost out on around half a cent against the Canadian Dollar on Friday as weak Sterling sentiment drove GBP/CAD lower.
The key data point for holders of the ‘Loonie’ to look out for this week is Wednesday Canadian GDP report, which could damage the Canadian Dollar if it turns out that the -20% plunge in oil prices during July had a major downward impact on economic growth.
Australian Dollar
The Pound to Australian Dollar exchange rate weakened by around -70 pips on Friday but the long-term outlook for the Antipodean currency looks much less encouraging. Analysts posit that the ‘Aussie’ will decline by around 5% in the final three months of 2015 and by over 10% during 2016 as the commodity cycle that sent AUD higher in recent years continues to unravel.
New Zealand Dollar
Sterling depreciated by around -150 pips against the New Zealand Dollar on Friday as the ‘Kiwi’ continued to surge following an increase in the amount dairy farmers will be paid for their produce. Dairy is New Zealand’s largest export and therefore the ‘Kiwi’ is very susceptible to fluctuations in milk price.
Data Released Today
13:30 USD Personal Consumption Expenditure Core (YoY) (AUG) High 1.2%
13:30 USD Personal Spending (AUG) Medium 0.3%