Headlines
•
Sterling rallies ahead of BoE statement
– Markets forecasts Q2 2016 rate hike.
•
GBP/EUR up slightly
– German surplus swells.
•
‘Cable’ rebounds from psychological support
– Sterling rallies 150 pips.
•
RBNZ cuts rates
– But NZD rallies on bets of no more stimulus.
Sterling
After a poor start to the week Sterling put on a decent performance yesterday as investors piled into the Pound ahead of today’s announcements from the Bank of England.
The BoE is widely expected to leave interest rates on hold at 0.50% but markets predict the central bank will strike a slightly more positive tone with regards to future interest rates than in their previous statement last month. It will be interesting to see whether the minutes report features optimism in line with market forecasts, which point towards a first rate hike in the second quarter of 2016. We could see demand for the Pound swell if this proves to be the case.
Euro
The Pound rose slightly against the Euro yesterday, driven by optimism ahead of today’s BoE interest rate announcement.
German carmaker Volkswagen benefitted from a 5% surge in stock yesterday as an investigation found that only 36,000 cars were impacted by the emissions scandal that rocked German industry earlier in the year, which is a lot less than the 800,000 initially feared.
The reputation-damaging VW debacle appeared to have a negative impact on German manufacturing with exports down -1.2% in October. However, the German surplus still swelled to a near-all-time high due to a faster-than-expected -3.4% fall in imports.
US Dollar
The Pound to US Dollar exchange rate soared higher by over 150 pips yesterday to strike a fortnightly high as positive BoE rate hike sentiment bolstered Sterling’s appeal.
The latest rebound proved that traders see psychological support at 1.50 as an attractive entry level and suggests that GBP/USD should remain above that marker unless we see a substantial change in outlook; either a dovish turn from the Bank of England (an explicit nod to lower rates for longer) or a hawkish move from the Federal Reserve (a December rate hike, plus a promise to continue hiking rates swiftly in the New Year).
Canadian Dollar
Sterling accelerated to a three-month high against the Canadian Dollar yesterday after registering a 200-pip daily gain. It seems that the latest collapse in commodity prices, especially crude oil plunging to a near-seven-year low, is having a severely negative impact on the commodity-sensitive ‘Loonie’.
Crude prices actually rose slightly yesterday on the back of a better-than-anticipated US crude inventories report, which showed that compared to a forecasted rise of 1.3 million barrels supplies actually dropped by -3.6 million barrels last week.
Australian Dollar
A rampant surge in demand for Sterling took GBP/AUD higher by over 200 pips during the London session yesterday to help the Pound reach a two-week high against the Australian Dollar.
However, demand for the ‘Aussie’ rebounded earlier this morning when decent jobs numbers diminished bets that the Reserve Bank of Australia could slash rates again anytime soon. Compared to calls for a -10,000 loss, the labour market increased by 71,000 last month, which brought the unemployment rate down from 5.9% to a 17-month low of 5.8% and took GBP/AUD back down by -200 pips. Analysts now see a 36% chance of a RBA rate cut in 2016, as opposed to a 76% chance before the surprisingly solid jobs figures.
New Zealand Dollar
The Pound rallied by around two-and-a-half cents yesterday against the New Zealand Dollar during the London session but the ‘Kiwi’ recovered during the evening as the Reserve Bank of New Zealand cut rates but signalled that it expects inflation to remain on target without the need for further stimulus. The RBNZ cut rates -25 basis points to a near-two-year low of 2.50%.
Data Released Today
09:30 GBP Visible Trade Balance (Pounds) (OCT) -£9700
12:00 GBP Bank of England Rate Decision (DEC 10) 0.50%