Headlines
• UK GDP Estimated at 0.5% –
Slowdown forecast to be temporary
• Pound Trims Gains against Euro –
Holds at 1.53 against USD
• German Exports Slide –
ECB could expand QE on slowdown concerns
• BoE Minutes Ahead –
Split vote could boost Pound Sterling
Sterling
After trending in a weaker position against peers like the Euro and US Dollar at the beginning of the week, the Pound staged an impressive rebound on Wednesday following the publication of the UK’s latest Industrial and Manufacturing Production figures.
Industrial Production was shown to have increased by 1.0% on the month, smashing forecasts for a 0.3% rise and contributing to a better-than-expected annual figure of 1.9%. Manufacturing Production was also up by more-than-projected on the month, although the annual figure fell short. Sterling rallied to a high of 1.3635 against the Euro after the data was released and was left trending above 1.53 against the US Dollar.
However, the Pound’s gains were tempered later in the day as the National Institute of Economic and Social Research published its GDP estimate for the three months through September. Growth of 0.5% was posted, marking a slowdown from the 0.7% expansion recorded in the second quarter of the year. However, NIESR did remark; ‘This slight softening in the third quarter is expected to be temporary. It is consistent with our latest forecast for the year as a whole.’
A subpar RICS House Price Balance report also weighed on the Pound on Thursday.
Although today’s Bank of England (BoE) policy meeting isn’t expected to inspire much excitement, the minutes from the gathering will be closely attended to. If the nine members of the Monetary Policy Committee (MPC) were divided on when to increase borrowing costs Sterling could rally. Conversely, a unanimous interest rate decision could have negative repercussions for the Pound.
Euro
Germany’s less-than-impressive Industrial Production report for August left the Euro under pressure on Wednesday. Although figures for July were positively revised, the month-on-month decline of -1.2% and annual number of 2.3% were decidedly lower than the respective forecasts of 0.2% and 3.3%.
The Euro dipped against both the Pound and US Dollar following the report’s publication. However, the common currency staged a rebound on Thursday despite German trade data revealing the largest slump in exports since the 2009 recession. Support for the Euro came as the new Syriza-led Greek government won a vote of no-confidence, indicating that the nation could at last be on a stable path to recovery.
Given the recent Volkswagen scandal, Germany’s economic prospects are only expected to deteriorate – a circumstance which might encourage the European Central Bank (ECB) to expand stimulus measures. Today’s ECB meeting minutes have the potential to trigger Euro fluctuations.
US Dollar
Fed official John Williams might have been fairly bullish on the likelihood of US borrowing costs being increased this year, but US Dollar trading remained cautious following last Friday’s disastrous Non-Farm Payrolls report.
The ‘Greenback’ is holding lower across the board this morning ahead of the publication of the minutes from the last Federal Open Market Committee (FOMC) policy gathering. As the minutes were taken prior to the recent batch of domestic employment numbers being released, their impact may be muted.
That being said, if the Fed adopts a dovish tone and takes the prospect of an October interest rate revision off the table, we could see ‘Cable’ push back towards the 1.54 level – provided the BoE minutes are on the hawkish side.
The US initial jobless and continuing claims numbers will also be of interest.
The ‘Loonie’s rally extended on Wednesday as crude oil prices continued recovering from last week’s 11-year low. With commodities firming and speculation regarding US interest rates swirling, the Canadian Dollar has so far shrugged off disappointing domestic data this week.
Yesterday’s Building Permits report revealed an unexpected -3.7% slump on the month in August, but the data had little impact. Canada is set to publish its Housing Starts number and New Housing Price Index later today, but commodity price movement and central bank policy concerns are likely to have a more significant impact on ‘Loonie’ trading.
The Australian Dollar’s impressive winning streak persisted on Wednesday, with the ‘Aussie’ registering additional gains against both the US Dollar and Pound.
However, some industry experts have predicted that this reprieve is temporary, with Chinese growth concerns and the eventual tightening of policy in the US likely to drive the Australian Dollar into another slump before too long.
A positive dairy auction sent the New Zealand Dollar above the 66 cent mark against the US Dollar mid-week, with the commodity currency largely holding gains ahead of the release of New Zealand’s Card Spending report.
As some analysts have asserted that the ‘Kiwi’ looks ‘exhausted’ after its recent rally, disappointing domestic data could provide the impetus for a downtrend. However, a dovish set of meeting minutes from the FOMC may lend the New Zealand Dollar underlying support.
Data Released Today
12:00 GBP Bank of England Rate Decision – High
12:30 ECB Account of Monetary Policy Meeting – Medium
13:15 CAD Housing Starts (SEP) – Medium
13:30 CAD New Housing Price Index (MoM) (AUG) – Medium
19:00 FOMC Meeting Minutes (16-17 SEP) – High