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– Factory contraction hurts rate hike bets.
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Pound down a cent versus Euro
– GBP/EUR close to 11-month low.
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‘Cable’ hits new five-year low
– Downbeat data weighs on Pound.
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Crude oil at new 12-year low
– Canadian Dollar still beats Sterling.
Sterling
Sterling fell out of fashion like Jose Mourinho in his third year at Chelsea yesterday. The Pound weakened across the board as negative sentiment reigned supreme in reaction to news of internal divisions.
After two years at the top investors are now betting that the UK economy is cooling. Following months of underwhelming wage growth data, anaemic consumer price growth and burgeoning ‘Brexit’ fears the market turned on Sterling in response to a poor manufacturing result. Compared to expectations of 0.0% industrial production shrank -0.7% month-on-month in November, while manufacturing output contracted -0.4% compared to forecasts of +0.1% growth. On an annual basis the manufacturing sector declined -1.2%.
Investors took the dismal numbers as confirmation that the Bank of England will not be moved to raise rates in the first half of 2016. BoE rate hike bets now show that most market players reckon the UK central bank will wait on the sidelines until the final three months of the year and this weighed heavily on the Pound.
Euro
Sterling plunged lower by around a cent against the Euro, falling close to a new 11-month low, yesterday as negative BoE rate hike sentiment reduced the appeal of the Pound.
Although the National Institute of Economic and Social Research (NIESR) estimated that British GDP growth accelerated from 0.4% to 0.6% in the fourth quarter analysts were perturbed by yesterday’s dismal UK industrial and manufacturing data, which could drive down the official figures.
A separate report from the British Retail Consortium (BRC) showed that retail spending improved less year-on-year over the Christmas holidays than during the rest of 2015. The BRC put this subdued growth down to a deluge of early sales and the unseasonably warm weather, which deterred purchases of warm clothes.
This morning’s headline report is tipped to show that Eurozone industrial output dropped -0.3% over the month of November but grew 1.3% on a yearly basis.
US Dollar
The Pound to US Dollar exchange rate shed another cent yesterday to strike a new five-and-a-half-year low as downbeat British data weighed on UK rate hike bets and global risk aversion trends continued to prop-up the safe-haven ‘Greenback’.
The combination of ‘Brexit’ fears, slowing domestic output, weak inflation and soft global growth suggests that the BoE would be better off putting its proposed rate rise on hold. Markets sold Sterling aggressively yesterday as negative rate sentiment prevailed and it looks difficult to see a turnaround in fortunes for the Pound unless something unexpectedly positive happens in the near future.
Thursday’s BoE rate announcement is almost certainly going to see at least eight policymakers vote against raising rates and if it emerges that Ian McCafferty, the sole hawk on the board, retracted his vote for a hike in January then GBP/USD could suffer further losses.
Canadian Dollar
Although crude oil suffered another 12-year low yesterday, the commodity-sensitive Canadian Dollar managed to avoid depreciating against the Pound. Whereas the ‘Loonie’ fell versus most, the downtrodden UK tender was the loser on this occasion.
GBP/CAD sank by around -80 pips but if scandalous talk of oil falling from the current, previously unthinkable, $30 a barrel to a shameful $10 a barrel proves accurate then the Canadian Dollar could well plummet in value against the Pound.
Australian Dollar
The Pound lost out on around -125 pips against the Australian Dollar yesterday as markets pummelled the UK currency in response to soft manufacturing and retail data, which led to a marked decrease in BoE rate hike bets.
In China traders were shocked by the People’s Bank of China’s (PBoC) decision to raise the overnight bank rate rate on the Renminibi to 66.7%. The astronomical hike was intended to scare off speculators from betting against a downfall in the Chinese currency. This acted to stabilise markets and reduced a little bit of pressure on the ‘Aussie’.
New Zealand Dollar
Sterling declined by around half a cent against the New Zealand Dollar yesterday, as traders punished the UK tender for the drop-off in BoE interest rate expectations that followed the latest round of soft domestic data.
Data Released
10:00 EUR Euro-Zone Industrial Production w.d.a. (YoY) (NOV) Medium 1.3%
17:30 USD Fed’s Evans Speaks on Economy and Monetary Policy in Iowa Medium