Exchange Rate Headlines
- BoE’s Weale talks down rate hike prospects – Cites slowing wage growth & falling oil prices.
- GBP/EUR hits two-month low – GBP/USD slides to eight-month low.
- Sterling sinks to six-month low vs. ‘Kiwi’ – Japanese stimulus supports risk appetite.
Sterling
The Pound received a pre-Christmas roasting yesterday as traders reacted negatively to some disappointing public sector finance figures.
The Office for National Statistics (ONS) reported that the British government borrowed £14.2 billion to balance the books in November, which overshot the median market consensus of £11.1 billion and doubled October’s total of £6.7 billion. The drastically high borrowing figures brought the year-to-date 2015⁄2016 deficit up to £66.9 billion after eight months – only slightly lower than Chancellor George Osborne’s end of year target of £68.9 billion. The market reaction was predictably sharp given the thin trading conditions in the run-up to Christmas, with Sterling shrinking versus all of the majors.
Euro
The Pound to Euro exchange rate depreciated by around -150 pips yesterday to strike a new two-month low as investors punished the Pound for the day’s disappointing government borrowing figures.
Sterling was also hurt by comments from Bank of England policymaker Martin Weale, who is considered one of the most hawkish members of the committee, suggesting that plunging oil prices and slowing wage growth could pour cold water on UK rate hike bets in the New Year. Weale admitted that the main factors weighing on inflation had ‘become a bit more prolonged’ and suggested that the need for higher rates was ‘slightly less immediate’.
UK third quarter GDP is predicted to be confirmed at 2.3% later this morning but the print is not expected to have a major impact on the Sterling exchange rate.
US Dollar
Sterling slid to an eight-month low against the US Dollar yesterday as traders reacted to downbeat British data and a better-than-anticipated US GDP print.
The US economy grew by 2.0% in the third quarter according to the latest revision and although this marked a slight slowdown on the previous estimate of 2.1% it was cheered by investors because it beat the market forecast of 1.9%. Strong spending figures from businesses and consumers were integral to the expansion.
The ‘Greenback’ also benefitted from an unexpected rise in Personal Consumption Expenditure from 1.3% to 1.4%, which bolstered 2016 Federal Reserve rate hike bets because PCE is the US central bank’s preferred measure of inflationary pressures.
Canadian Dollar
The Pound ceded around -150 pips to the Canadian Dollar yesterday as negative Sterling sentiment was accentuated by thin Holiday trading conditions. The commodity-sensitive ‘Loonie’ was also given a leg-up by a consolidation of crude oil prices following the 11-year low struck on Monday afternoon. GBP/CAD could sink further if this afternoon’s data shows, as expected, that Canadian GDP rebounded from a -0.5% monthly contraction to grow 0.2% in October and that retail sales volumes increased by 0.4%.
Australian Dollar
The Pound depreciated by around two cents against the Australian Dollar yesterday, striking a three-week low in the process, as markets reacted to new stimulus measures from the Bank of Japan, which are expected to increase Japanese GDP by 0.6% over the next three years. The risk-correlated ‘Aussie’ rallied following the announcement because speculative investors bet that spillover from the Japanese economy could help to boost economic activity in Australia.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate tumbled by over -200 pips to strike a six-month low yesterday. Again, it was a case of downbeat UK government borrowing figures weighing on Sterling and Japanese stimulus bets boosting investors’ appetite for risk in the Asia Pacific region.
Data Released Today
09:30 GBP Gross Domestic Product (YoY) (3Q F) Medium 2.3%
13:30 USD Personal Spending (NOV) Medium 0.3%
13:30 USD Durable Goods Orders (NOV P) High -0.7%
13:30 CAD Gross Domestic Product (YoY) (OCT) High 0.0%
13:30 CAD Gross Domestic Product (MoM) (OCT) Medium 0.2%
13:30 CAD Retail Sales (MoM) (OCT) Medium 0.4%