Headlines
• UK gov borrowing down in September –
Upbeat report boosts Sterling slightly.
• GBP/EUR up on UK borrowing figures –
ECB policy decision in focus.
• UK retail sales report ahead –
GBP/USD could rally on strong print.
• GBP/CAD jumps on dovish BoC –
Reduced oil profits could prompt more easing.
Sterling
Sterling ticked higher versus some of the majors yesterday following a better-than-anticipated UK government borrowing report.
The latest public sector lending figures showed that Chancellor George Osborne was forced to borrow £8.6 billion in September to balance the books, which was much lower than the £10.8 billion borrowed in August and markedly lower than the median market forecast of £9.6 billion. Traders said the upbeat report, which was influenced by a surge in tax receipts, reflected favourably on the Pound but noted that Osborne will need to make significant progress if he is to hit his 2015⁄2016 target of reducing the deficit by -22%.
The Pound also stands to benefit this morning if the latest retail sales report shows, as expected, that consumer spending accelerated from an annual rate of 3.5% to 4.7% during September.
Euro
The Pound to Euro exchange rate rallied slightly yesterday morning on the back of the stronger-than-anticipated UK government borrowing data, which showed signs of improvements in the labour market seeping through to the government coffers.
There were no key European ecostats released during yesterday’s session, which left investors speculating over this afternoon’s widely anticipated policy decision from the European Central Bank. Markets are not primed for a new monetary policy announcement at this juncture but there is a distinct possibility that ECB President Mario Draghi, the master of the jawbone, could attempt to talk down the single currency by playing up the possibility of further easing in the near future. Depending on how hard Draghi tries to jawbone the Euro, and on how seriously markets take him, the single currency could fluctuate significantly following this afternoon’s statement.
US Dollar
An 11.8% rise in US mortgage approvals, marking a rebound from the previous month’s collapse of -27.6%, did little to drive sentiment towards ‘Cable’ yesterday as markets focussed on this morning’s UK retail sales report.
Because consumer spending accounts for over two-thirds of British GDP the retail numbers have the potential to hold sway over GBP/USD during today’s session. Anything above the median market consensus of a 0.3% monthly rise could bolster demand for Sterling whilst anything below 0.3% could push the Pound lower.
The ECB policy announcement could also have an impact on GBP/USD if it leads to any large moves in EUR/USD – the world’s most-traded currency pair.
Canadian Dollar
Sterling surged by over 100 pips against the Canadian Dollar yesterday despite the fact that the Bank of Canada opted to leave rates unchanged at 0.50%.
The commodity-sensitive ‘Loonie’ was negatively impacted by BoC Governor Stephen Poloz’ policy statement, which showed that lower oil prices were continuing to drain business sentiment, weigh on export profits and drag on domestic growth. Poloz announced that the bank had slashed its 2016 GDP forecast from 2.3% to 2.0% and cut its 2017 forecast from 2.6% to 2.5%. The dovish remarks hurt the Canadian Dollar because they were seen to increase the possibility of further monetary loosening from the BoC further down the line.
Australian Dollar
Sterling rallied by just under two cents against the ‘Aussie’ Dollar yesterday as commodity prices continued to decline and the Bank of Canada struck a dovish tone, which in turn led to weakened demand for the risk-sensitive ‘Aussie’ Dollar.
Amid a climate of plunging commodity prices the New Zealand Dollar depreciated by around a cent against the Pound yesterday. Sterling’s gains were supported by a dairy auction earlier on in the week, which saw prices for milk powder decline, ending a run of four straight increases in New Zealand’s most lucrative export.
Data Released Today
09:30 GBP Public Sector Net Borrowing (Pounds) (SEP)
15:00 CAD Bank of Canada Rate Decision (OCT 21)
15:00 CAD Bank of Canada Releases Monetary Policy Report