Headlines
• Quiet start to loud week –
FX markets primed for big moves.
• ECB easing bets continue to swell –
GBP/EUR rallies 50 pips.
• ‘Cable’ at risk of seven-month low –
Psychological support holds…for now.
• Canadian GDP on tap –
Strong figure could quell rate cut talk.
Sterling
It was a fairly quiet start yesterday to what is hotting up to be a very significant week for the currency market.
Record levels of volatility are expected as European Central Bank President Mario Draghi announces the bank’s monetary policy plans for December and Federal Reserve Chairwoman Janet Yellen addresses the press in the build-up to what markets expect to be the first piece of monetary tightening in the US since 2006.
The only UK ecostats released yesterday showed that mortgage approvals rose from 69,000 to 69,600 in October but that consumer credit cooled minimally from £1.3 billion to £1.2 billion. The status quo numbers had very little impact on demand for the Pound.
Data this morning is expected to show that UK manufacturing output cooled slightly in November following a bumper score in October.
Euro
Sterling rallied by around half a cent against the Euro yesterday as traders continued to position themselves ahead of Thursday’s huge policy statement from the ECB.
It looks increasingly likely that ECB President Mario Draghi will loosen policy further on Thursday, and this prevailing attitude is weighing heavily over the single currency. However, the extent to which the Euro depreciates following the announcement will depend on how impressed traders are with ‘Super’ Mario’s new plans. If Draghi announces a comprehensive package of lower interest rates, wider bond purchases and a higher asset purchasing target then the Euro could fall to a seven-month low against the Pound. On the other hand, if Draghi is unable to convince markets that his stimulus package will significantly alter market patterns then the single currency could actually rally as investors pull out of negative Euro bets.
Data this morning is tipped to show that German unemployment remained at 6.4% in November and that Eurozone joblessness remained at 10.8%.
US Dollar
Sterling dipped below a key psychological level against the US Dollar briefly yesterday afternoon but support kicked in and GBP/USD swiftly jumped higher by around 50 pips.
The outlook for the Pound against the US Dollar appears to be weighted to the downside in the run-up to the Fed’s interest rate decision later in the month but there is potential for Sterling to rally if US rate hike expectations are damaged. Fed Chairwoman Janet Yellen is set to make two public announcements later this week and most analysts expect the central banker to pave the way for higher rates. The market reaction to enhanced Fed hike speculation is unlikely to be that monumental but if Yellen were to talk down the prospects of tighter policy GBP/USD could soar as traders attempt to get back on the right side of the curve.
Today’s data is anticipated to show that the premier gauge of US manufacturing increased slightly from 50.1 to 50.5 in November.
Canadian Dollar
The Pound weakened slightly against the Canadian Dollar yesterday ahead of a report due for release this afternoon, which is tipped to show that the Canadian economy bounced back from a -0.5% contraction in the second quarter to expand 2.3% in Q3. The data is liable to kill off any lingering fears that the Bank of Canada could cut rates at its meeting on Wednesday and therefore could give the ‘Loonie’ a little bit of a boost.
Australian Dollar
Despite iron ore spot prices sliding to their lowest levels on record yesterday the commodity-sensitive Australian Dollar managed to strengthen by around a cent against the Pound yesterday as investors bet that the Reserve Bank of Australia wouldn’t slash interest rates in December.
New Zealand Dollar
The Pound weakened by around -130 pips against the New Zealand Dollar yesterday as markets put their faith in a decent result at today’s GlobalDairyTrade auction. Dairy production is New Zealand’s largest export sector and subsequently the ‘Kiwi’ shares a strong correlation with dairy prices.
Data Released Today
09:30 UK GBP Markit Manufacturing PMI (Nov)
08:55 EUR German Unemployment Rate s.a. (NOV) High
10:00 EUR Euro-Zone Unemployment Rate (OCT) Medium 10.8%
13:30 CAD Quarterly Gross Domestic Product Annualized (3Q) High 2.3%
15:00 USD ISM Manufacturing (NOV) High 50.5