Headlines
• Preliminary British GDP due –
UK industrial production on tap.
• GBP/EUR holds steady –
Markets unimpressed by Draghi comments.
• US Dollar rallies mildly –
Fed rate hike bets close to saturation.
• OPEC fails to curb oil production –
Crude close to seven-year low, CAD, AUD & NZD down.
Sterling
With no fresh domestic data to contend with Sterling traders remained on the sidelines yesterday. Bank of England Governor Mark Carney did give a speech in Brussels but, because he was appearing in his role as Vice-Chair of the European Systemic Risk Board, the statement did not contain any policy hints. Rather, Carney spoke of his desire to reform the EU law that restricts bankers’ bonuses to a percentage of their annual salaries.
There is slightly more to look forward to today, with UK industrial production set to print at 1.2% and a preliminary GDP report for November likely to come in between 0.5%-0.6%.
Euro
The Pound to Euro exchange rate held steady yesterday. Sterling rallied by around half a cent in the morning but the single currency clawed back its losses during the afternoon.
Over the weekend European Central Bank President Mario Draghi did his best to appease markets following what was interpreted as a disappointing set of new stimulus measures last week. Reminiscent of his 2012 pledge to do ‘whatever it takes’ to save the Euro, Draghi stressed there was ‘no limit’ to what the ECB could do to hit the 2.0% inflation target.
His 2012 statement is recognised as a pivotal point in the history of the single currency due to the profound impact it had on markets – the Euro strengthened by over 12 cents in the six months following the pledge – but after last week’s underwhelming display ‘Super’ Mario’s dovish weekend rhetoric fell on death ears.
Third quarter Eurozone GDP is expected to be confirmed at 0.3% this morning but GBP/EUR is unlikely to fluctuate heavily in the aftermath of the report unless investors are treated to an unexpected growth revision.
US Dollar
Sterling softened by around a quarter of a cent yesterday as markets continued to bet that the Federal Reserve would hike rates later this month.
Because traders have been anticipating a December rate hike for quite some time now, and because last week’s hawkish statement from Fed President Janet Yellen and the potent non-farm payrolls report gave rise to a massive surge in December hike positioning, the impact of hawkish Fed sentiment on the ‘Greenback’ is getting weaker everyday. A December piece of monetary tightening from the Fed is pretty much priced into the Pound to US Dollar exchange rate at the moment, so it could take something significant and different to drive GBP/USD back below key psychological support at 1.5000.
Canadian Dollar
The Pound to Canadian Dollar exchange rate surged by around 130 pips yesterday to strike a new two-month high as oil prices continued to plummet.
Investors, world over reacted to the latest OPEC meeting which saw the Saudi-dominated oil-producing nations cartel do nothing to kick start a recovery in oil prices. Some traders were hoping that OPEC would announce a cut in oil production to help drive prices higher but, with Iran looking to return to the market following Western-imposed sanctions, the cartel failed to announce a lower daily limit. This sent crude sliding to near-seven-year lows as markets reacted to the prospect of supply outweighing demand yet again in 2016.
Australian Dollar
Sterling rallied by over a cent against the Australian Dollar yesterday as risk-sensitive currencies took a pummelling on the back of another slide in oil prices. Commodity-sensitive currencies such as the ‘Aussie’, the ‘Loonie’ and the ‘Kiwi’ all declined against the traditional safe havens in reaction to the latest OPEC meeting. Following the meeting Iranian oil minister Bijan Namdar Zanganeh said of the daily production limit ‘effectively, it’s ceilingless’.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate soared yesterday, rallying by over 250 pips as investors hedged against the possibility of the Reserve Bank of New Zealand cutting rates later this week. A poll of Bloomberg analysts saw 15 out of the 18 respondents predict that the RBNZ would cut rates by -25 basis points to 2.50% on Wednesday.
Data Released Today
09:30 GBP Industrial Production (YoY) (OCT) Medium 1.2%
09:30 GBP Manufacturing Production (YoY) (OCT) Medium 0.0%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (3Q P) Medium 0.3%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (3Q P) High 1.6%
13:30 CAD Building Permits (MoM) (OCT) Medium 3.2%
15:00 GBP NIESR Gross Domestic Product Estimate (NOV) Medium 0.6%