Headlines
• UK mortgage approvals slow –
Retail sales soften.
• GBP/EUR close to two-month high –
Eurozone CPI on tap.
• GBP/USD rises 50 pips –
US growth slows to 1.5% YoY.
• China relaxes one-child policy –
‘Kiwi’ rallies on dairy trade bets.
Sterling
Data yesterday showed that mortgage approvals in Britain slowed for the first time in four months during September and that retail sales volumes also softened. The subdued data prints did not have a massive impact on demand for Sterling but they did give the doves a little more ammunition in their argument for keeping interest rates low for longer.
A separate report, released by UBS, rationalised that London’s average house price of half a million pounds makes the capital the most over-valued property market of any major city in the world. They rated London 1.88 on their bubble index and warned that between 1985 and 2009 prices corrected lower by an average of 30% within three years of the index exceeding 1.00 ‘95% of the time’.
Euro
The Pound to Euro exchange rate remained close to a two-month high yesterday as increased Federal Reserve rate hike bets depressed demand for the single currency. However, the Euro did receive a little bit of a fillip in the form of a better-than-expected German CPI print. Inflation in the currency bloc’s largest economy rose unexpectedly from 0.0% to 0.3%, which caused analysts to predict a slightly higher than previously anticipated jump in this morning’s Eurozone CPI report.
But even if Euro area inflation rises to more than the 0.0% that traders have pencilled in, the prospect of further stimulus from the European Central Bank remains strong and GBP/EUR could yet rise above near-term psychological resistance over the next few weeks.
US Dollar
Sterling rallied by around half a cent against the US Dollar yesterday afternoon in reaction to a round of disappointing American data.
The headline annualised third quarter GDP report showed a sharp deceleration from 3.9% to 1.5% growth, as expected, thanks in part to a sizable slowdown in business inventories. Demand for the Dollar was also impacted by a steeper-than-forecast dip in core personal consumption expenditure – a key measure of US inflation – from 1.9% to 1.3% and a slowdown in pending home sales from 6.6% to 2.5%.
Overall, the downbeat data was not considered that much of a game-changer because it was largely inline with market forecasts and therefore was already factored into the Fed’s bullish statement on Thursday, which saw President Janet Yellen explicitly talk up the possibility of a rate hike in December. The mood around markets suggests that as long as US data does not disappoint profoundly, the US central bank will probably raise rates before the end of the year.
Canadian Dollar
The Pound to Canadian Dollar exchange rate remained relatively flat yesterday as markets geared up for this afternoon’s Canadian GDP report. Traders anticipate a slight slowdown in monthly growth from 0.3% to 0.1% but a paradoxical rise in yearly growth from 0.8% to 1.0%. GBP/CAD is liable to continue on a fairly steady path throughout today’s session if the figures match the median market consensus but there is potential for volatility if the growth report deviates from expectations.
Australian Dollar
The Pound rallied by around 70 pips to strike a 30-day high against the Australian Dollar yesterday as global risk sentiment remained weak following the Fed’s surprisingly hawkish policy statement on Thursday evening.
New Zealand Dollar
Although the impact of the programme had been waning for some years now, a breaking news announcement from China that it was no longer pursuing its one child policy had a positive impact on the New Zealand Dollar yesterday. Traders saw the possibility of a population boom in China as good news for New Zealand and its lucrative dairy industry. The rationale being that more babies being born in China would lead to greater demand for milk powder from New Zealand.
And GBP/NZD fluctuated lower by a further 100 pips during the Asian session last night.
Data Released Today
10:00 EUR Euro-Zone Unemployment Rate (SEP) Medium 11.0%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (OCT) High 0.0%
12:30 CAD Gross Domestic Product (MoM) (AUG) Medium 0.1%
12:30 CAD Gross Domestic Product (YoY) (AUG) High 1.0%
14:00 USD U. of Michigan Confidence (OCT F) Medium 92.5