Sterling
The Royal Institute of Chartered Surveyors (RICS) joined the chorus of voices arguing that the UK economy is slowing in the aftermath of the ‘Brexit’ referendum yesterday. RICS’ headline house price index fell from 15 to a three-year low of 5 in July, with respondents reporting fewer sales enquiries and lower asking prices in many areas of the country. Alongside the Bank of England’s regional agents report and the recent seven-year low private sector PMI report, the disappointing housing market data paints a gloomy picture of post-‘Brexit’ Britain.
With little on the economic calendar today apart from a construction output report, which is tipped to show a 2.1% contraction in June, Sterling could struggle to hold its own as BoE bond-buying continues to drag on British gilt yields – and therefore demand for the UK currency.
Euro
The Pound to Euro exchange rate ticked lower yesterday to strike a new monthly low. The combination of economic uncertainty and loose BoE monetary policy post-‘Brexit’ has put significant downward pressure on Sterling, causing GBP/EUR to come within 15 pips of striking a new three-year low during yesterday’s session.
Data due for release today in the Eurozone is anticipated to confirm that the currency bloc expanded 0.3% in the second quarter, bringing annualised growth to 1.6%. Barring a surprisingly soft number, the GDP report is more likely to bolster the appeal of the single currency than dampen it. However, it will be interesting to see how well the Eurozone performs in the third quarter and whether the historic British EU referendum had any significant impact on economic sentiment in the bloc.
US Dollar
Sterling slipped below significant psychological support against the US Dollar yesterday, registering a half-cent daily decline and a new monthly low in the process.
The latest leg in Sterling’s post-referendum slide could open the door to another four-cent devaluation if market forecasts prove accurate. The fear for holders of the Pound is that British GDP may undershoot the Bank of England’s current forecasts, therefore prompting a sooner-than-anticipated new dose of monetary stimulus.
This afternoon sees US retail sales and consumer confidence data. If the domestic reports come in positively then the ‘Greenback’ will surely rise on enhanced Federal Reserve rate hike bets. However, if the indicators disappoint there is potential for a slight recovery in GBP/USD.
Canadian Dollar
The Pound to Canadian Dollar exchange rate plunged two cents to a fresh two-and-a-half-year low yesterday as traders reacted sharply to poor UK housing data and a surprise uptick in crude oil prices.
Oil jumped 3% during the afternoon in response to remarks made by Saudi Arabian oil minister Khalid al-Falih suggesting that oil-producing nations could agree on measures to curb oil output at a meeting next month in Algeria. The comments had an immediate positive impact on crude and, consequently, on the commodity-sensitive ‘Loonie’.
Australian Dollar
GBP/AUD briefly touched a new two-and-a-half-year low yesterday as the UK economic outlook continued to suffer from negative data points. The RICS housing market report weighed on demand for Sterling yesterday, while a consumer survey from Australia showing that inflation expectations are exceeding the Reserve Bank of Australia’s target did little to deter traders from investing in the high-yielding ‘Aussie’.
New Zealand Dollar
Sterling remained weaker against the New Zealand Dollar yesterday despite the Reserve Bank of New Zealand’s recent decision to cut interest rates 25 basis points. Markets were almost certain the RBNZ was going to act so the counterintuitive rise in ‘Kiwi’ following the decision reflected relief that the central bank had not cut rates by 50 pips.
Data Released
09:30 GBP Construction Output s.a. (YoY) (JUN) Medium -2.1%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (2Q P) Medium 0.3%
10:00 EUR Euro-Zone Gross Domestic Product s.a. (YoY) (2Q P) High 1.6%
13:30 USD Advance Retail Sales (JUL) High 0.4%
15:00 USD U. of Michigan Confidence (AUG P) High 91.5