Headlines
• UK jobs data due Wednesday –
Sterling could fall if data disappoints.
• GBP/EUR rises on NFP report –
Pound up 30 pips.
• ‘Cable’ rises on profit-taking –
GBP/USD appears vulnerable to bullish ‘Greenback’.
• Sterling appreciates vs. commodity bloc –
Markets gripped by risk aversion.
Sterling
The currency market entered consolidation mode yesterday as traders continued to come to terms with last week’s shockingly high US non-farm payrolls report, which sent ripples through the global economy. The prospect of higher borrowing costs in the world’s largest economy is prompting investors to pull out of perceived riskier assets and pump funds into the ‘Greenback’. A secondary consequence of this shift in central bank outlook is that the Pound has found itself depreciating against the commodity bloc and the Euro.
Euro
Sterling rallied by around a third of a cent versus the single currency yesterday during the New York session as American traders continued to sell EUR/USD on the prospect of higher US rates next month. Because EUR/USD is the world’s most-traded currency pair large fluctuations between the two currencies often lead to large cross-over moves in other currency pairs. And this is exactly what happened yesterday when lots of EUR/USD sell orders led to a spike in GBP/EUR.
The next key event to look out for is Wednesday’s UK labour market report, which is tipped to see British unemployment remain at a seven-year low of 5.4% and is therefore liable to lend support to Sterling. Wage growth is also expected to rise from 3.0% to 3.2%. But if the report disappoints there is potential for the Euro to claw back some of its recent losses.
US Dollar
A bout of profit-taking allowed the Pound to rise by around half a cent against the US Dollar yesterday but ‘Cable’ remains -300 pips down on the levels it was trading at this time last week.
The combination of dovish Bank of England policy statements on Thursday afternoon and the miraculously high US NFP print on Friday afternoon means that Sterling could struggle to maintain an exchange rate above key psychological support over the coming weeks and months. The prevailing view among analysts suggests that the ‘Greenback’ could continue to appreciate in the run-up to next month’s policy meeting at the Federal Reserve.
Canadian Dollar
The Pound rose by around half a cent against the Canadian Dollar yesterday as the risk-sensitive ‘Loonie’ fell out of favour with investors on fears that higher borrowing costs south of the border could impact economic activity in the North American nation. The commodity-linked ‘Loonie’ was also hurt by a slight downtick in crude oil prices.
Australian Dollar
The Pound to Australian Dollar exchange rate increased in value by just under a cent yesterday as demand for the Antipodean currency remained fragile following Friday’s bullish US non-farm payrolls report. The ‘Aussie’ could continue to feel the pressure of higher US rates if Chinese ecostats don’t begin to stabilise in the near future.
Sterling registered a mild half-cent daily appreciation against the high-risk New Zealand Dollar yesterday as markets remained in risk-aversion mode following the strong US jobs figures on Friday afternoon.
Data Released Today
15:00 USD Wholesale Inventories (SEP) Medium 0.0%