Headlines
• Pound down on UK GDP –
Q3 growth remains at 0.5%.
• ECB easing bets continue to swell –
Markets prepared for stimulus next week.
• ‘Cable’ at risk of seven-month low –
BoE policymaker ‘relaxed’ about raising rates.
• Commodity prices slump –
On Chinese market concerns.
Sterling
On Friday the Office for National Statistics (ONS) reported that the UK economy grew, as expected, by 0.5% in the third quarter of this year. The unrevised GDP score meant that annualised growth also remained unchanged, at 2.3%. However, there were some interesting elements of the report, for example, it emerged that net trade weighed more on the British economy in Q3 (-1.5%) than at any point since records began in 1997. Service sector output continued to dominate, with a 0.7% expansion, while the construction sector contracted -2.2% and industrial output was revised lower from 0.3% to 0.2%.
Analysts saw the report as a sign that, courtesy of strong domestic demand, the UK economy is ticking along nicely despite fears of a global slowdown emanating from China. However, the UK’s overreliance on consumer spending does not bode well for Bank of England rate expectations. The Pound’s trade-weighted value is around 7% stronger than it was this time last year, which, combined with continued sluggishness in the Eurozone, is weighing on export growth. Governor Mark Carney and his team of policymakers are unlikely to want to drive Sterling higher by hiking rates prematurely and subsequently demand for the domestic currency weakened slightly following the GDP report.
Euro
The Pound softened by around a quarter of a cent against the Euro on Friday as investors reacted to the latest UK growth figures, which painted a picture of an economy performing well at home but badly abroad.
All eyes will be on European Central Bank President Mario Draghi this week as he prepares for Thursday’s highly awaited monetary policy announcement. Markets are looking for ‘Super’ Mario to level up the ECB’s QE scheme and level down the bank’s deposit rate – anything less than that could actually give the single currency a boost because traders have been pricing-in further stimulus for some time now.
US Dollar
Sterling declined by over half a cent against the US Dollar on Friday following the latest UK GDP figures, which did little to boost BoE rate hike bets.
Indeed, over the weekend BoE policymaker Gertjan Vlieghe told the Sunday Times that the recent appreciation in Sterling was having a ‘huge’ tightening effect on monetary policy, which made him ‘relaxed’ about waiting longer to begin raising rates from the current record low.
GBP/USD is currently sitting just a little higher than a key psychological support level, which if broken could lead to ‘Cable’ sliding to its lowest level in seven months.
Canadian Dollar
The Canadian Dollar initially rallied versus the Pound after Friday’s UK GDP report, however, the ‘Loonie’s’ gains didn’t last long and GBP/CAD managed to strengthen by around a third of a cent by the close of play.
The reason for the drop off in demand for the ‘Loonie’ was another dip in the value of Canada’s most lucrative export, crude oil. Prices slumped as investors grew anxious that Chinese equity markets could continue to fall, which in turn could weigh on demand for the ‘black gold’. These anxieties overshadowed, for the time being at least, geopolitical concerns related to the oil-rich Middle East region.
Australian Dollar
Weak risk sentiment weighed on the Australian Dollar at the start of this week’s session and GBP/AUD appreciated by around half a cent in the early hours of the morning. Commodity prices remain weak and the Federal Reserve looks set to raise rates in December – both of these are potential reasons for the fall in the ‘Aussie’ Dollar – but markets have known about soft commodities and the impending Fed hike for months so it is entirely possible that we could see a little bit of rebound in demand for the Antipodean currency over the next few days.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate is currently around a cent stronger than it was at the beginning of Friday’s session. Sterling fared better against the ‘Kiwi’ – and the rest of the commodity bloc – than it did against the Euro or the US Dollar on Friday because risk assets were hurt by news that Chinese regulators are examining activity at some of the nation’s largest equity firms.
Data Released Today
09:30 UK GBP Consumer Credit (Oct)
09:30 UK GBP Mortgage Approvals (Oct)
13:00 GER EUR Consumer Price Index (YoY) (Nov)Preliminar
15:30 US USD Dallas Fed Manufacturing Business Index (Nov)