Sterling
The Pound received a boost yesterday when news hit the wires that Japan’s Softbank had launched a successful bid to purchase UK chip designer ARM. The deal is worth £24.3 billion, which is equal to around a quarter of the UK’s annual trade deficit. The incoming packet of Sterling currency sent the Pound higher and helped assuage doom and gloom following last month’s ‘Brexit’ vote. The hope is that Sterling’s devaluation will help attract foreign buyers and analysts predict that we could see more deals like this over the next few months.
Sterling was also boosted, to a lesser extent, by hawkish comments from Bank of England policymaker Martin Weale suggesting that the BoE need not rush to slash interest rates next month. Weale acknowledged that British wages would likely soften as a consequence of the ‘Brexit’ vote, but suggested that there are not enough signs of financial panic to justify cutting rates so soon after the referendum.
Euro
The Pound to Euro exchange rate ticked slightly higher yesterday as investors responded positively to the ARM takeover deal, which will see £24. Billion pumped into the UK financial system.
Today’s main event is the June UK consumer price index report, which is forecast to show a slight rise in price pressures. May’s CPI report printed at 0.3% but June’s is anticipated to come in at 0.4%. However, after years of attempts to drive inflation higher the Bank of England may not enjoy seeing CPI increase at this juncture. This is because the weakening of the Pound is predicted to make imports more expensive, which over time will lead to higher prices on the high street.
In the Eurozone, the German ZEW survey is tipped to show that economic sentiment dropped from 19.2 to 9.0 at the beginning of the month. The data is unlikely to materially impact the GBP/EUR rate.
US Dollar
‘Cable’ increased in value by around a quarter of a cent yesterday as the multibillion Pound ARM takeover bid buoyed economic sentiment in Britain.
Despite the Pound’s decent performance against the US Dollar over the past week, many analysts expect GBP/USD to end the year at least seven cents lower than the current rates on offer. However, these forecasts are based on the assumption that the BoE will embark on a sizable stimulus scheme over the next few months and Martin Weale’s comments yesterday prove that nothing can be taken for granted regarding central bank policy.
Canadian Dollar
Sterling benefitted from the corporate ARM takeover deal yesterday while the Canadian Dollar suffered as oil prices tanked 2%. Overall, GBP/CAD inched higher by around a third of a cent.
Crude tumbled as new data from Genscape indicated that US stockpiles rose by 26,460 barrels last week, stoking concerns of oversupply in the energy sector.
Australian Dollar
The Pound rose by around half a cent against the Australian Dollar yesterday as markets continued to digest the latest policy statements from the BoE. The bank left rates on hold on Thursday but gave a strong indication that monetary policy would be loosened on August 4. BoE Chief Economist Andy Haldane mirrored these sentiments on Friday, calling for ‘muscular’ monetary policy next month. However, Martin Weale’s suggestion yesterday morning that rates should not be raised yet gave investors food for thought and helped prop-up demand for Sterling.
New Zealand Dollar
Sterling registered respectable gains of over two cents against the New Zealand Dollar yesterday as inflation in the Antipodean nation came in softer-than-anticipated. The New Zealand second quarter consumer price index printed at 0.4%, confounding expectations of 0.5%, which helped drive GBP/NZD higher as Reserve Bank of New Zealand rate cut speculation proliferated.
Data Released
09:30 GBP Consumer Price Index (YoY) (JUN) High 0.4%
10:00 EUR German ZEW Survey (Economic Sentiment) (JUL) Medium 9