Sterling
It was a fairly quiet day for the Pound yesterday but the Bank of England’s recently announced stimulus scheme meant that Sterling found itself depreciating slightly versus the majors. The appeal of the UK currency has tanked over the past week in reaction to the aggressive easing measures, which have already dragged UK Treasury yields to record lows. The Pound’s fortunes don’t look likely to change anytime soon either; BoE Governor Mark Carney stated last week that he expects the easing programme to be enhanced unless the UK economy surpasses the bank’s growth prospects of 2.0% this year and 0.8% next year. Some analysts are less optimistic than those at Threadneedle Street, with many banks forecasting that Britain will slide back into recession over the next 6-12 months.
Euro
Sterling tumbled by around a quarter of a cent against the Euro yesterday as German industrial production rebounded from a 0.4% contraction in May with a 0.5% expansion in June and Eurozone investor confidence printed at 4.2, beating expectations of 3.0. The sanguine results mildly bolstered the appeal of the single currency compared to the downtrodden Pound.
Today’s key data points are related to the UK economy: industrial production is tipped to print at 0.1% for June, having declined 0.5% in May, and the budget deficit is predicted to rise slightly from £9.9 billion to £10.1 billion. Considering that recent PMI surveys have signalled UK industry has started to shrink since the EU referendum, it is entirely possible that the production report will underperform. If this proves to be the case then we may see Sterling cede some more ground to the Euro.
US Dollar
‘Cable’ depreciated by around half a cent against the US Dollar yesterday as Sterling hovered above three-week lows against the US Dollar.
The contrast in rate outlooks of the Pound and the ‘Greenback’ means that traders are much more likely to invest in the Dollar: the BoE recently restarted easing with a mind to bolster its stimulus scheme, while the Federal Reserve hiked rates last December and could well tighten again before the year is out. In addition to this yield bias, the ‘Buck’ also benefits from its position as the business currency of the world, meaning that a certain level of stability is guaranteed. This comes in sharp contrast to the current predicament in Britain, where an historic
vote to leave the European Union recently brought about a 13% devaluation in the Pound.
A poor industrial production or trade balance print this morning could persuade investors to short GBP/USD, while a better-than-anticipated result could provide some respite.
Canadian Dollar
The Pound gave most of its gains from Friday’s session, when disappointing Canadian jobs figures and rising Fed rate hike expectations weighed on the ‘Loonie’, as speculative investors resumed Sterling selling in the aftermath of the BoE’s ‘Super Thursday’ stimulus announcement. Technical patterns now point to further weakness in GBP/CAD, with last Thursday’s three-cent decline seen as a significant bearish indicator.
Australian Dollar
The Pound to Australian Dollar exchange rate plummeted over 160 pips to strike a two-and-a-half-year low yesterday. The move appears to suggest that investors do not expect the Reserve Bank of Australia to follow August’s 25 basis point rate cut with further pieces of monetary loosening over the next few months. At 1.50% the ‘Aussie’ benefits from a much higher rate of return than Sterling’s negligible 0.25% benchmark rate.
New Zealand Dollar
Sterling lost out on around a cent against the New Zealand Dollar yesterday as the impact of Friday’s decent non-farm payroll report (stronger Fed rate hike speculation) was replaced with bearish bets on the Pound due to the BoE’s aggressively dovish outlook for monetary policy.
Data Released
09:30 GBP Industrial Production (MoM) (JUN) 0.1% Me0.1%dium0 1.6%
09:30 GBP Visible Trade Balance (Pounds) (JUN) Medium -£10075