Headlines
•
UK manufacturing contracts in October
– British GDP forecast at 0.6% in November.
•
GBP/EUR hits 40-day low
– Eurozone Q3 GDP confirmed at 0.3%.
•
‘Cable’ grapples with technical levels
– Sterling declines -50 pips.
•
Commodity prices slump
– RBNZ rate decision on tap.
Sterling
Demand for the Pound dipped yesterday in reaction to a surprise contraction in manufacturing output. October’s manufacturing production report showed that the sector contracted by more than expected during the month of October, bringing the annualised score down. Although the industrial production report fared slightly better, with monthly expansion of 0.1% and yearly growth of 1.7%, analysts warned that Chancellor George Osborne’s attempts to rebalance the UK away from services towards an export-led economy could be akin to King Canute’s vain attempts to stop the tides of the sea.
N.B. The popular tale of King Canute and the waves was originally designed to highlight his humility, for he knew he could not stop the waves, but in popular use it is generally used to highlight the futility of going against something as unbreakable as the tides.
Euro
Sterling lost out on over a cent against the Euro yesterday and GBP/EUR sunk to a 40-day low as soft manufacturing output weighed on the UK tender.
In the Eurozone third quarter GDP was confirmed at 0.3%, which was half as strong as the latest UK growth score. The National Institute of Economic and Social Research (NIESR) released a preliminary forecast of 0.6% for British growth in November but this was not enough to lift Sterling’s spirits yesterday.
It seems that the single currency is still garnering support following the European Central Bank’s underwhelming stimulus announcements last week.
US Dollar
Sterling grappled with technical support levels yesterday after suffering a half-cent decline. The morning’s disappointing domestic data helped drive ‘Cable’ lower but, as previously stated, significant Sterling buy orders are often triggered when GBP/USD dips below key psychological support at 1.50.
The US JOLTS, or Job Openings and Labour Turnover, report printed slightly lower-than-anticipated at 5.38 million yesterday afternoon, down from 5.53 million previously. Despite the fact that the JOLTS report is a labour market gauge favoured by Federal Reserve President Janet Yellen, the mild decrease is not likely to prevent the US central bank from raising rates later this month and the ‘Greenback’ remained suitably insensitive to the reading.
Canadian Dollar
The Pound rallied by around half a cent against the Canadian Dollar yesterday as crude oil prices continued to slump. The value of ‘black gold’ plunged to new near-seven-year lows amid a global supply glut that is outpacing demand.
The OPEC’s decision not to curb production in an attempt to drive cheaply produced US shale oil refineries out of business means that prices are likely to remain at rock-bottom rates well into next year. Some analysts have even predicted that prices will decrease from the current $37 per barrel to $20 per barrel over the next 12 months. Oil is Canada’s largest export and subsequently the ‘Loonie’ often rises and falls in tandem with global oil prices.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around 70 pips yesterday as iron ore prices slid to a decade-low on concerns that a slowdown in China paired with higher interest rates in the US would greatly reduce demand for the commodity in 2016. Rather like the ‘Loonie’ with oil, the ‘Aussie’ often shares a correlation with iron because it is Australia’s largest export.
New Zealand Dollar
Strangely, the New Zealand Dollar managed to rally by around half a cent against the Pound yesterday, despite the impending threat of lower interest rates at this evening’s Reserve Bank of New Zealand policy announcement.
Analysts predict that the RBNZ will slash rates by -25 basis points to 2.50% and it is entirely likely that ‘Kiwi’ will depreciate if this proves to be the case. On the other hand, if the RBNZ leaves rates unchanged we could see demand for the New Zealand Dollar surge.
Data Released Today
20:00 NZD Reserve Bank of New Zealand Rate Decision (DEC 10) 2.50%