Headlines
• Sterling soft ahead of Autumn budget –
Investors fear harsh new austerity.
• GBP/EUR softens –
Eurozone private sector hits four-year high.
• US manufacturing hits two-year low –
Fed rate hike still looks likely.
• Saudi statement invigorates crude oil –
Canadian Dollar rallies.
Sterling
The Pound struggled to garner support yesterday as investors remained weary ahead of Wednesday’s Autumn Statement from Chancellor George Osborne. Analysts expect the Chancellor to announce a raft of new austerity measures to help bring down the deficit – which came in surprisingly high in October – that could potentially weigh on economic growth in Britain. If the government spending cuts and tax hikes are seen to be overly aggressive then we could see Sterling come under selling pressure. However, if the budget statement is seen as conducive to sturdy economic activity then we could see a surge in demand for the UK tender.
Euro
The Pound to Euro exchange rate weakened by around half a cent yesterday as markets reacted to some encouraging private sector data out of the Eurozone.
Although activity in France softened to a three-month low following the devastating terror attacks in Paris, the Eurozone indicator was boosted by a solid performance in the bloc’s largest economy, Germany, which witnessed the fastest rise in new business for two years, the biggest backlog of work for four-and-a-half years and the best employment figures since the end of 2011. The Eurozone composite index of private sector activity rose to a four-year high of 54.4 in October.
This morning’s German IFO indicators could give the single currency a further boost if they print positively but the scope for Euro strength remains muted ahead of December’s monetary policy announcement from the European Central Bank.
US Dollar
Sterling depreciated by around -60 pips against the US Dollar yesterday despite data in America showing that US manufacturing growth cooled to a two-year low at the start of November.
The factory output PMI slowed from 54.1 to 52.6, undershooting analysts’ expectations of 54.0, as sub-indexes for new orders output and employment all underperformed. However, because the sector remains above the 50.0 mark separating growth from contraction the result is not expected to weigh on mounting bets of a rate hike from the Federal Reserve next month.
This afternoon’s data could be of greater consequence; the US third quarter growth rate is expected to be upgraded from 1.5% to 2.1%, which should keep rate hike bets alive. However, a downward revision of the same amount (to 0.9%) could plant the seed of doubt in traders’ minds.
Canadian Dollar
The Pound also shed around half a cent against the Canadian Dollar thanks to a sharp turnaround in the value of its most lucrative export, crude oil.
The value of the so-called ‘black gold’ initially decreased on comments from the Venezuelan oil minister warning that crude could slump to a US$20 a barrel but demand spiked when the Saudi Arabian oil minister released a statement containing a promise to maintain ‘the stability of the oil market’ and ‘cooperate with all oil producing and exporting countries’. Investors interpreted the statement as a sign that prominent OPEC member Saudi Arabia could be on the verge of cutting production levels in reaction to the recent dip in demand.
Australian Dollar
The plot of the GBP/AUD graph yesterday spelled out a lowercase ‘n’. Whether this ‘n’ stood for ‘no more Sterling gains’, or ‘nothing at all’ remains to be seen. Sterling’s initial 150 pip gains evaporated during the London session as traders continued to fret over Wednesday Autumn Statement from Chancellor George Osborne.
New Zealand Dollar
The Pound strengthened slightly against the New Zealand Dollar yesterday, by around 60 pips, but demand for Sterling remained capped by concerns that tough new austerity measures could restrict economic activity in Britain over the next few months.
Data Released Today
09:00 EUR German IFO – Business Climate (NOV) Medium 108.2
13:30 USD Gross Domestic Product (Annualized) (3Q S) High 2.1%
13:30 USD Personal Consumption (3Q S) High 3.2%
15:00 USD Consumer Confidence (NOV) High 99.5