Headlines
• Euro down on Fed statement –
EUR/USD dips over 250 pips.
• GBP/EUR hits two-month high –
Fed talks up December hike.
• GBP/USD depreciates 40 pips
– Fed plays down global growth concerns.
• Canadian Dollar rallies on oil data – US crude supplies lower-than-anticipated.
Sterling
There were no key UK ecostats released yesterday and as such the Pound found itself at the mercy of events taking place on foreign shores. Today’s session looks a little more lively, with UK consumer credit data expected to show that Britons borrowed £1.1 billion in September, up from £0.9 billion in August, and home lending data anticipated to show that mortgage approvals rose from 71,000 to 72,500 in September. However, the lending data is unlikely to have a major impact on Bank of England rate hike expectations and subsequently Sterling’s fate may once again be dictated by economic events in other countries.
Euro
British Prime Minister David Cameron gave his most explicit defence to date of the UK remaining in the European Union. He cited Norway as an example of a nation outside of the EU that contributes similar amounts of money and abides by many of the same rules but ‘does not have a voice at the table’. A continuation of EU membership is generally seen as a good thing by investors because the uncertainty of a ‘Brexit’ could lead to tighter liquidity conditions and negative sentiment in markets. However, on this occasion the PM’s pro-EU comments had very little impact on the Pound to Euro exchange rate because traders were caught up in anticipation of the Federal Reserve’s latest policy announcement.
GBP/EUR jumped higher by around 150 pips to reach a fresh two-month high during the evening when the Fed put the prospect of a December rate hike back on the table, which led to a dramatic decrease in demand for EUR/USD.
US Dollar
Sterling weakened by around -40 pips against the US Dollar yesterday evening following a much more hawkish statement from the Federal Reserve than most analysts were expecting.
The US central bank left rates on hold at 0.25% but explicitly mentioned the possibility of tightening policy in December. In contrast to September’s statement, Fed President Janet Yellen played down volatility in global markets and focussed on sturdy improvements in the jobs market and the potential for inflation to rise back to the 2.0% target with time.
In light of the upbeat Fed statement US data is likely to lead to large currency moves over the next few months. US GDP growth is tipped to come in at an annualised rate of 1.5% this afternoon, marking a steep slowdown in the third quarter from the 3.9% growth registered in the second quarter. If the figure comes in lower than that it could weigh on the ‘Greenback’, especially if core personal consumption expenditure also disappoints: traders expect core PCE to slow form 1.9% to 1.4%.
Canadian Dollar
The Pound to Canadian Dollar exchange rate depreciated by around two cents yesterday as crude oil inventories printed lower than traders had projected. The commodity-sensitive ‘Loonie’ had weakened earlier on in the week in response to expectations that US crude inventories would rise by 4.1 million barrels but the actual result saw a smaller uptick of 3.4 million barrels, which drove oil prices higher by around 5% and translated into a surge in demand for the oil-linked Canadian Dollar.
The ‘Loonie’ gave back some of its gains following the hawkish Fed statement but Sterling remained (significantly) down on the day.
Australian Dollar
Sterling rose by around 150 pips against the Australian Dollar yesterday morning in response to a surprise dip in consumer prices. The Australian third quarter inflation print came in at 0.5%, down from 0.7% in the second quarter, which meant that the headline annualised CPI score remained at 1.5%, underwhelming expectations of a rise to 1.7%.
GBP/AUD rose by a further half cent during the evening as increased December rate hike bets weighed on global risk sentiment.
New Zealand Dollar
The Pound rose steadily against the New Zealand Dollar throughout the day yesterday, racking up an intra-day peak appreciation of 300 pips following the hawkish Fed statement but softened slightly after the Reserve Bank of New Zealand left rates on hold at 2.75%. However, the RBNZ signalled that further cuts could be made over the next few months.
Data Released Today
09:30 GBP Net Consumer Credit (SEP) Medium
09:30 GBP Mortgage Approvals (SEP) Medium
12:30 USD Gross Domestic Product (Annualized) (3Q A)
12:30 USD Core Personal Consumption Expenditure (QoQ) (3Q A)%
13:00 EUR German Consumer Price Index (YoY) (OCT P)