Headlines
• Fizzing retail sales report boosts Pound –
Two-year high 1.9% monthly expansion.
• GBP/EUR hits monthly high –
ECB’s Draghi talks up further easing.
• ‘Cable’ loses out following ECB statement –
GBP/USD gives back gains on EUR/USD cross flows.
• Commodity bloc rally on ECB easing hopes –
Sterling gives up morning gains.
Sterling
The Pound rallied yesterday morning on the back of a robust UK retail sales report, which showed that consumer spending including auto fuel jumped 1.9% in September – the index’s largest monthly rise in two years. The Office for National Statistics (ONS), who compiled the report, commented that the retail sector was given a massive boost from beer sales as a result of the Rugby World Cup – despite England’s poor showing at the tournament on home soil.
The figures wowed analysts who had anticipated a much more subdued score of 0.4%, in fact none of the economists polled predicted a number that high. On an annual basis, retail sales excluding auto fuels accelerated from 3.2% to 5.9%. However, Sterling’s gains against the majors bar the Euro were cut short in the afternoon because…
Euro
…European Central Bank President Mario Draghi gave a remarkably dovish speech on the prospect of multiple new easing measures. Draghi’s remarks on the likelihood of looser policy by the end of the year sent the Euro tumbling but the hope of further stimulus boosted risk sentiment and drove EUR/USD lower, which in turn drove the US Dollar higher against the Pound.
Draghi spoke of a multitude of possible options, such as: increasing the ECB’s €60 billion a month asset purchasing target, widening the remit for bonds to be purchased, cutting the deposit rate even further into negative territory (it currently stands at -0.20%), pushing the benchmark interest rate even lower (it currently stands at 0.05%) and even mooted the idea of intervening in the currency market.
Although the ECB chief claimed that the bank does not have an exchange rate target for the single currency, he indicated that a weaker currency would help boost consumer prices and his brutal jawboning was seen as a clear SELL signal for the Euro. The Pound to Euro exchange rate rallied by around 220 pips to a monthly high following the announcement.
US Dollar
Sterling rose through psychological resistance against the US Dollar yesterday following the fizzing UK retail sales report.
However, demand for the ‘Greenback’ sizzled during the afternoon when ECB President Draghi sent EUR/USD plunging by talking up the prospect of further stimulus in the Eurozone.
EUR/USD is the world’s most-traded currency pair, and as such large moves in favour of either the Euro or the US Dollar often spill over into other currency pairs, and this is exactly what happened yesterday with the ‘Greenback’ surging against Sterling following the dovish ECB announcement.
Across the pond in the States it was reported that jobless claims rose minimally from 256,000 to 259,000 and that existing home sales rose 4.7% but neither result was of much consequence to ‘Cable’.
Canadian Dollar
The Pound initially strengthened by around 100 pips to three-week high against the Canadian Dollar yesterday thanks to the morning’s impressive UK retail sales report.
However, the Canadian Dollar benefitted from a sturdy retail report of its own, with volumes rising 0.5% compared to forecasts of 0.1% and GBP/CAD ended up -70 pips down for the day as risk appetite flourished following ECB President Mario Draghi’s strong hint that the bank could loosen policy further before the year is out.
The ‘Loonie’ could push ahead further today if this afternoon’s Canadian consumer price index report rises from 0.2% to 0.3% as expected.
Australian Dollar
The Pound to Australian Dollar exchange rate struck a fortnightly high yesterday morning as robust UK retail sales coupled with a rise in the Commonwealth Bank of Australia’s mortgage rates drove GBP/AUD higher. The rise in home loan rates hurt the ‘Aussie’ because analysts bet that it could persuade the Reserve Bank of Australia to loosen policy.
But Sterling’s rallies dropped off during the afternoon in response to the ECB’s extremely dovish policy statement, which appeared to pave the way for some form of additional stimulus later this year, most likely in December.
New Zealand Dollar
Sterling lost out on around two cents against the New Zealand Dollar yesterday due to a sizable increase in risk sentiment that was directly linked to ECB President Mario Draghi’s openness to loosen policy further in order to drive Eurozone inflation prospects higher.
Data Released Today
09:00 EUR Markit Eurozone Manufacturing PMI (OCT P) Medium 51.7
13:30 CAD Consumer Price Index (YoY) (SEP) High 1.1%
14:45 USD Markit US Manufacturing PMI (OCT P) Medium 52.9