Headlines
• Quiet day of UK data –
Sterling relatively flat versus most majors.
• ECB easing disappoints –
GBP/EUR rebounds slightly.
• Sturdy NFP seen to boost Fed rate hike bets –
211,000 score prompts December hike speculation.
• Pound down vs. commodity bloc –
As risk sentiment rises on normalisation of US policy.
Sterling
After a week of volatility the Pound held relatively steady versus the majors on Friday in the absence of any fresh UK economic data. Sterling was pretty much flat against the US Dollar, slightly higher against the Euro and the Canadian Dollar but lost a little bit of ground to the Australian and New Zealand Dollars.
There are no significant domestic stats to look out for during today’s session but we have a preliminary forecast of November GDP output coming up on Tuesday and an all-important policy statement from the Bank of England on Thursday. Any dovish or hawkish remarks could have a profound impact on demand for the Pound.
Euro
The Pound rebounded by around a third of a cent on Friday as investors locked in profit following Thursday’s surprising European Central Bank announcement. The ECB’s new programme was not as strong as traders had hoped for and this sent the single currency surging across the board. Indeed, Thursday’s 3% rise in EUR/USD was the Euro’s third best percentile performance in its history.
Although Draghi cut the benchmark rate -10 basis points, extended the QE programme by six months and widened the programme’s remit to include regional government bonds, traders were expecting a higher monthly asset purchasing target and markets were caught off-guard when such an announcement was not made. It seems like any market moves on Friday were just adjustments following the single currency’s 250 pip gain against the Pound.
US Dollar
A team of professional analysts predicted that Friday’s crucial non-farm payroll report would come in at 200,000. A mass of professional analysts, keen financial observers and amateur armchair traders, using the Twitter hashtag #NFPGuesses, predicted a score of 211,000. Sensationally, the tweeters got it right. Make of that what you will.
Regardless of the efficacy of Twitter-based forecast models the sturdy US labour market score means there is a very high chance that the Federal Reserve will raise rates for the first time in nine years later this month. The Pound to US Dollar exchange rate barely moved following the upbeat NFP report because the prospect of a December Fed rate hike was already largely priced into the ‘Greenback’ following a hawkish statement from Fed President Jane Yellen on Tuesday. But make no mistake: a December rate hike would mark a significant moment in Fed history. The last time the US central bank raised rates was June 2006 – a month before Twitter even existed.
Canadian Dollar
Sterling strengthened slightly against the Canadian Dollar on Friday as unemployment in Canada came in higher-than-anticipated at 7.1%. Markets were primed for the jobless rate to remain at 7.0% in November but a surprise -35,700 decline in employment weighed on the ‘Loonie’.
The Canadian Dollar also suffered as crude oil prices slumped on news that OPEC announced a rise of 1.5 million barrels to their daily output target, which brought the total to 31.5 million barrels per day.
Australian Dollar
The Pound to Australian Dollar exchange rate fell by around -70 pips on Friday when the decent US NFP numbers were released. Although the November jobs report is likely to prompt a rate rise in the US, which will ultimately hurt the high-risk ‘Aussie’ Dollar, markets were pleased with the result because it at least gives the impression of stability. If the Fed were to backtrack on hawkish sentiment now, it would likely lead to volatility in markets and a downturn in equities, which could push investors to cut their exposure to risk.
New Zealand Dollar
Sterling shrunk by around -150 pips against the New Zealand Dollar on Friday when the American jobs report was released. Again, the dip in demand for the Pound against the Antipodean ‘Kiwi’ was seen as a sign that markets want the Fed to finally begin normalising monetary policy.
Data Released Today
20:00 US USD Consumer Credit Change (Oct)2 $20.00B