Headlines
• BoE Rate Speculation Weighs on Pound –
GBP/EUR struggling
• Fed Official Comments on Rate Hike –
2015 lift-off could still be on the cards
• GBP/AUD Down to 2.08 –
UK inflation ahead
• New Zealand Dollar Extends Rally –
NAB don’t see ‘Kiwi’ strength lasting
Sterling
Sterling put on a less-than-impressive performance against rivals like the Euro, Australian Dollar, New Zealand Dollar and Canadian Dollar last week as Bank of England (BoE) interest rate hike expectations were driven back by dovish MPC meeting minutes.
A below-forecast UK Services PMI also contributed to the Pound’s declines. This week the direction Sterling takes will be dictated by the UK’s latest inflation and employment numbers.
If tomorrow’s CPI shows an increase in annual core and non-core inflation, the Pound could rally. Conversely, another annual non-core figure of 0.0% or a dip into negative territory would weigh on Sterling.
Wednesday’s UK jobs data could give the Pound a boost as average weekly earnings are forecast to have risen from 2.9% to 3.1%, with the nation also adding a sturdy 140,000 positions in the three months through August.
Euro
Last week a concerning slowdown in German Industrial Production heightened speculation surrounding the likelihood of the European Central Bank (ECB) expanding quantitative easing measures.
Despite this, and despite concerns relating to the recent Volkswagen scandal, the Euro remained fairly resilient and the common currency kept the Pound trending lower for much of the week.
However, today’s news that Volkswagen is recalling cars in China may put pressure on the Euro during a quiet data session. Tomorrow final inflation figures for Germany and the ZEW economic sentiment surveys are due for publication.
Revised CPI or a marked movement in sentiment may trigger Euro volatility.
Last week the US Dollar was pressured lower against several of its most traded rivals as US data, including the influential ISM Non-Manufacturing composite index, disappointed. The minutes from the last Federal Open Market Committee (FOMC) policy gathering also failed to support expectations for interest rates being adjusted before the close of the year.
The ‘Greenback’ accordingly slipped to multi-week lows against its commodity-correlated peers, the Australian, New Zealand and Canadian Dollars, while fluctuating against the Pound and Euro.
With recent US jobs numbers falling flat and consumer price pressures expected to remain low, the US Dollar failed to derive much support from comments issued by Federal Reserve Vice Chairman Stanley Fischer. Although Fischer observed that the US economy may be strong enough to warrant higher borrowing costs before 2016, he also intimated that policymakers will take the slowdown in the domestic employment sector into account before making any decisions.
US data is lacking today but several Fed officials, including Atlanta Fed President Dennis Lockhart, are due to speak and the tone of their comments may inspire some ‘Greenback’ movement.
Canadian Dollar
Canada’s latest jobs data may not have been that encouraging, but the ‘Loonie’ brushed off the impact of the unexpected increase in the nation’s unemployment rate thanks to commodity-price strength.
A surge in the price of crude oil, Canada’s key export, helped the Canadian Dollar rally against the Pound and hit a two-month high against the US Dollar.
Given the dearth of Canadian reports scheduled for publication over the next five days, commodity price shifts and US news are likely to be the main cause of any ‘Loonie’ fluctuations.
Australian Dollar
Bets that the Federal Reserve will refrain from adjusting interest rates in 2015 in light of recent US data are keeping the Australian Dollar buoyant, with the GBP/AUD exchange rate falling to trend in the region of 2.08 after achieving highs of 2.20 towards the close of August.
The AUD/USD exchange rate also closed out trading on Friday close to a seven-week high after registering a five-day gain of 4.1%. However, with Australian fundamentals weak and some industry experts predicting that the current spike in risk sentiment will prove temporary, the Australian Dollar could reverse recent gains in the weeks ahead.
Tomorrow’s Chinese trade data and Australian Business Conditions/Confidence reports could have an impact on the ‘Aussie’s performance, but GBP/AUD movement may be limited ahead of the publication of the UK’s latest inflation numbers.
New Zealand Dollar
Like the Australian Dollar, the New Zealand Dollar has enjoyed a significant rally in recent weeks, with the ‘Kiwi’ gaining by more than 7% against the US Dollar since September.
Higher commodity prices, poor US data and a risk-on environment have supported the New Zealand Dollar’s uptrend, but analysts with National Australia Bank (NAB) don’t see the currency’s strength enduring.
While the New Zealand Dollar’s rally could continue over the short-term, they see long-term downside risks for the currency.
Overnight New Zealand’s September REINZ House Sales figure came in at 38.3% year-on-year, down from 41.7% in August.
Data Released Today
There are no notable economic releases today.