Sterling
Sterling ticked lower versus most of the majors – but not the US Dollar – on Friday as downbeat domestic sentiment weighed on the UK currency. Global currencies were also boosted by an underperforming US GDP report, which increased investors’ appetite for risk.
UK data showed that British consumer morale tumbled at its sharpest rate for more than 26 years in July as the nation continued to react to the historic ‘Brexit’ vote on June 23. The disappointing numbers had little impact on the Pound but Bank of England rate cut bets are liable to weigh on Sterling this week. The BoE is widely expected to cut rates 25 basis points on Thursday but the Pound’s losses could be even greater if policymakers decide to slash rates more sharply or introduce another round of quantitative easing measures.
Euro
The Euro responded positively to data on Friday showing that the Eurozone’s consumer price index doubled in June – albeit from a negligible 0.1% to a still troublesome 0.2%. The CPI print beat expectations of 0.1% and was accompanied by news that the currency bloc matched economists’ forecasts of a 0.3% expansion in the second quarter.
Sterling sank 75 pips to a fortnightly low against the single currency following the results, with expectations of BoE stimulus also dragging on demand for the Pound. In addition to the prospect of interest rate cuts and QE bond-buying, some analysts reckon the UK central bank could consider implementing a policy of so-called ‘helicopter money’. The name evokes bizarre images of aircrafts dropping five, ten and twenty Pound notes all over Britain. However, the concept actually involves a central bank creating money and issuing it to each citizen, or using it to purchase perpetual bonds in order to fund specific national infrastructure projects. Though the scheme sounds a bit farfetched Sterling would be liable to depreciate if it were mooted, on concerns that the money supply could become overinflated.
US Dollar
The Pound to US Dollar exchange rate rallied by around 80 pips on Friday to strike a near-fortnightly high in reaction to disappointing US GDP numbers.
The second quarter US growth report indicated that the world’s largest economy expanded at an annual pace of 1.2% between April-June, massively undershooting forecasts of a bumper 2.6% print. The result equated to tepid quarterly growth of around 0.3%. Private consumption provided a boost to the figure, while business inventories and imports weighed.
The ‘Greenback’ suffered following the unexpectedly soft GDP report because traders bet that it would be more difficult for hawkish policymakers at the Federal Reserve to argue the case for tighter monetary policy at this stage. The possibility of a September rate hike was considered significantly lower by the end of the afternoon.
Canadian Dollar
Helped by the softer-than-anticipated US GDP numbers, the Canadian Dollar managed to register gains of around 75 pips against Sterling on Friday.
The risk-correlated ‘Loonie’ saw an uptick in demand following the American growth report because investors’ appetite for risk increased as Fed rate hike bets diminished. These risk trends meant that traders were happy to buy into the ‘Loonie’ even though Canadian GDP printed at -0.6% for the month of May, undershooting expectations of -0.5%. On an annual basis the North American economy decelerated from 1.5% to 1.0%.
Australian Dollar
The Pound to Australian Dollar exchange rate weakened by around 125 pips on Friday as the high-risk ‘Aussie’ benefitted from a reduction in Federal Reserve rate hike expectations. The downbeat US growth report was instrumental in sending the commodity bloc of the ‘Loonie’, ‘Aussie’ and ‘Kiwi’ higher against the Pound.
New Zealand Dollar
Sterling depreciated by over two cents against the New Zealand Dollar on Friday as the prospect of fierce stimulus from the Bank of England this week weighed on the Pound and hopes that the Fed will hold off on raising interest rates this year bolstered the appeal of the risk-sensitive ‘Kiwi’.
Data Released
15:00 USD ISM Manufacturing (JUL) High 52.4