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Pound down on soft inflation prospects –
Deutsche Bank says Sterling most overvalued.
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GBP/EUR up ten cents so far in 2015 –
But December ECB decision still boosting Euro.
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‘Cable’ close to eight-month low –
GBP/CAD up on fresh oil slide.
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Pound to ‘Kiwi’ Dollar exchange slides –
120 pips – Sterling strikes six-month low.
Sterling
The Pound softened versus most of the majors in thin Holiday trading yesterday. Sterling continued to depreciate after the Christmas break as fears that fragile inflation prospects could persuade the Bank of England to leave rates on hold through the first half of next year weighed on British sentiment.
Analysts at Deutsche Bank recently posited that Sterling was the ‘most overvalued currency on the planet’ due to the latest plunge in oil prices and rise in the budget deficit, which were seen as significant barriers to a potential tightening of monetary policy. And many traders are worried that aggressive spending cuts over the next three years to bring down the deficit could weigh on consumption trends and impact domestic growth.
Euro
The Pound to Euro exchange rate slumped by around -30 pips yesterday as negative Sterling sentiment dominated a day devoid of any fresh economic stimulus.
The Pound is down nine cents on July’s seven-and-a-half-year high but that still leaves GBP/EUR up by ten cents over 2015. The latest leg of the Greek crisis and fears that the Hellenic nation would quit the currency bloc weighed on the single currency during the first half of the year and the Euro remained weak as investors bet on additional quantitative easing measures from the European Central Bank. However, the ECB opted against increasing its asset purchasing target in December and this allowed the Euro to claw back some of its 2015 losses against the Pound.
US Dollar
‘Cable’ declined by around a third of a cent yesterday, falling close to an eight-month low, to mark a seven cent decline so far in 2015.
The big story for GBP/USD this year has been the race between the Bank of England and the Federal Reserve to raise interest rates. Evidently, the Fed won the race but the muted market reaction means that the ‘Greenback’ could drive further ahead if central bank Chief Janet Yellen continues to talk up the prospect of another four rate hikes in 2016. The Fed’s projection graphs currently show plans for four, but markets only reckon the central bank will manage two.
Canadian Dollar
Sterling rallied by around a quarter of a cent yesterday as investors reacted to the latest drop in oil prices, which took the ‘black gold’ close to its lowest level for 11 years.
Yesterday’s minor gains capped a year in which GBP/CAD has gained over 25 cents thanks to a couple of rate cuts from the Bank of Canada and an unexpected acceleration of crude oil’s downward spiral.
Australian Dollar
The Pound to Australian Dollar exchange rate remained fairly flat yesterday as commodity prices slumped on fears of further slowdowns in Chinese, emerging market and global growth prospects next year.
GBP/AUD struck a six-year high back in August and although Sterling is -20 cents lower than that level, the Pound is still up by around 15 cents so far this year.
New Zealand Dollar
Sterling plunged -120 pips against the New Zealand Dollar yesterday to strike a six-month low as traders bet that both the Reserve Bank of New Zealand and the Bank of England will leave rates on hold over the next few months. This new perspective contravenes previous expectations of further RBNZ cuts and imminent BoE hikes.
Remarkably GBP/NZD has fluctuated by over 50 cents this year, striking a high point in August before sinking back down during the second half of the year.
Data Released Today
15:00 USD Consumer Confidence (DEC) Medium 93.8