Headlines
Sterling rises vs. commodity bloc.
• GBP/EUR flat –
Despite negative Eurozone CPI print.
• ‘Cable’ down -30-pips –
Respected investor says Fed could hike in December.
• GBP/AUD up 150 pips –
Chinese concerns could hurt ‘Aussie’.
Sterling
The Pound put in a positive performance versus some of the majors on Friday thanks to hawkish comments from Bank of England policymaker Kristin Forbes.
Forbes played down the impact of emerging market ‘doom and gloom’ and rejected fellow monetary policy committee member Andy Haldane’s suggestion that interest rates could fall again before they rise. ‘The news on the international economy has not caused me to adjust my prior expectations that the next move in UK interest rates will be up and that it will occur sooner rather than later’, she said.
Forbes’ statement leaves the nine-person committee split into three categories: there are three MPC members keen to start hiking soon, three who would like to see rates at the current record low for a long time and three who stand in the middle awaiting more evidence.
Euro
Despite data showing that Eurozone consumer prices sunk into negative territory in September the single currency did not cede any ground to the Pound on Friday.
Eurostat reported that price pressures tumbled from +0.1% to -0.1% last month as the impact of falling oil prices continued to weigh on inflation. Cyprus registered the weakest CPI score of -1.9%, whilst Spain saw prices fall -1.1% and Germany witnessed a -0.2% contraction. Overall, 11 of the 19 nations in the currency bloc saw a decline in CPI during September, which some investors said would put pressure on the European Central Bank to vamp up its quantitative easing scheme.
However, additional ECB QE is already priced into the market and it could take a significant/creative announcement from the central bank to actually drive down the Euro because the current asset purchasing mechanism does not appear to be having too much of a negative impact on the single currency.
US Dollar
The Pound to US Dollar exchange rate tumbled by around a third of a cent on Friday as a mixed bag of American data did little to help markets telegraph the Federal Reserve’s next move.
US consumer confidence rose unexpectedly from 87.2 to 92.1, which could potentially give the more hawkish Fed policymakers a stronger case to argue for a rate hike before the end of the year. Industrial production shrunk -0.2% as expected but the previous month’s score was revised higher from -0.4% to -0.1%.
Additionally, the ‘Greenback’ grew in demand after comments from Allianz’ chief economic adviser Mohamed El-Erian suggesting that a December rate hike is still on the table, contrary to the recent shift in market expectations.
Canadian Dollar
Sterling appreciated by around 40 pips against the Canadian Dollar on Friday as Kristin Forbes’ upbeat BoE rate hike remarks boosted the Pound and softer oil prices continued to deter traders from investing in the commodity-correlated ‘Loonie’.
The Bank of Canada is expected to leave interest rates on hold at 0.50% later on in the week but the ‘Loonie’ could sustain major losses if BoC Governor Stephen Poloz opts to strike a dovish tone during his press conference.
Australian Dollar
The Pound to Australian Dollar exchange rallied by around 150 pips on Friday as risk sentiment declined and BoE rate hike expectations improved slightly. There is little fresh Australian data on tap this week but traders are worried that the slowdown in China could persuade the Reserve Bank of Australia to loosen monetary policy further.
The Pound increased in value by around a third of a cent against the New Zealand Dollar on Friday and Chinese concerns could knock the ‘Kiwi’ lower over the next few days.
Data Released Today
15:00 USD NAHB Housing Market Index (OCT)