Headlines
• 1,200 British steel jobs to be cut –
Chinese Premier to announce £20bn of business deals.
• GBP/EUR down -60 pips –
Ahead of ECB policy statement.
• Technical rejection takes ‘Cable’ lower –
Mixed US housing data.
• ‘Loonie’ rallies ahead of BoC –
0.5% rate expected to remain.
Sterling
There were no significant domestic ecostats released yesterday so Sterling traders focussed on the disappointing news that the Indian conglomerate Tata, who owns most of the former British Steel, is to cut around 1,200 British jobs in reaction to fierce competition from cheaper Chinese steel companies. However, the Pound did not sustain any major losses because investors were cheered by comments from British business secretary Sajid Javid indicating that this week’s visit from Chinese President Xi Jinping would herald over £20 billion of new business deals that would help to “support jobs throughout the country”. Every cloud has its silver lining…sort of.
This morning’s public sector net borrowing data is expected to show that the government needed to borrow £1.7 billion less in September than it had to in August to balance the books, which could give the Pound a little bit of a boost.
Euro
With little clear motivation traders took the Pound to Euro exchange rate lower by around -60 pips yesterday.
The only factor that could have influenced markets was the release of new European Central Bank lending data, which showed that banks across the currency bloc were continuing to loosen loan standards due to increased liquidity flow from the ECB’s €60 billion a month quantitative easing scheme. The data could have been interpreted as a signal that the QE programme is doing its job, and therefore needn’t be bolstered. However, recent remarks from policymakers suggest that Euro area inflation is a major concern and that more QE will be announced at some point in the future.
US Dollar
After running into resistance during the morning Sterling declined by around half a cent in the afternoon as a mixed bag of US housing data did little to halt GBP/USD’s technical rejection.
The US housing starts indicator rebounded from -1.7% to +6.5% but the building permits index did the opposite and fell from +2.7% to -5.0%. Overall, the housing data had a fairly neutral impact on demand for ‘Cable’.
The latest murmuring from Federal Reserve officials suggests that policymakers are not confident that the current low level of unemployment will lead to higher consumer prices, as historical data suggests it should, because the dovish economic climate in the rest of the global economy bar Britain. This is because the Fed’s hawkish rhetoric leading up to September’s policy announcement has run counter to almost all other major central banks and has therefore had virtually the same tightening impact on financial markets as an actual rate hike.
Canadian Dollar
Sterling depreciated by around a cent yesterday against the Canadian Dollar as markets locked in profit following a three-week high in GBP/CAD.
The Bank of Canada is widely expected to leave its benchmark interest rate at 0.50% this afternoon, which could drive demand for the ‘Loonie’. However, the Canadian Dollar could easily weaken if BoC Governor Stephen Poloz leaves the door open to further easing.
Australian Dollar
The Pound to Australian Dollar exchange rate dipped -100 pips yesterday in reaction to a less-dovish-than-expected minutes report from the Reserve Bank of Australia. The RBA appeared happier with the current strength of the ‘Aussie’ Dollar than most investors had anticipated and policymakers showed little appetite to rush into another rate cut. However, GBP/AUD could yet mount another significant rally before the year-end because markets reckon there is a 60% chance of another cut in 2015.
New Zealand Dollar
Sterling rallied by over 160 pips against the New Zealand Dollar yesterday as prices of the Antipodean nation’s most lucrative export, dairy, fell at auction. The latest GlobalDairyTrade index slid -3.1% to break a four-month streak of rising prices and compromise demand for the commodity-correlated ‘Kiwi’ Dollar.
Data Released Today
09:30 GBP Public Sector Net Borrowing (Pounds) (SEP) Medium 9.6b
15:00 CAD Bank of Canada Rate Decision (OCT 21) High 0.5%
15:00 CAD Bank of Canada Releases Monetary Policy Report High