Sterling
The toxic combination of uncertain economic prospects, record low yields and aggressive Bank of England stimulus bets continued to weigh on demand for Sterling at the start of this week’s session. The only piece of UK data released yesterday showed that UK house prices fell at a monthly rate of 1.2% in July, indicating that confidence in the housing market could have waned since the ‘Brexit’ referendum. However, industry experts point out that house-hunting often suffers from a summer lull.
This morning’s key UK ecostat is tipped to show that inflation remained at 0.5% in July. Sadly, Sterling is unlikely to draw much support from the print – even if it comes in above expectations – because the Bank of England has already stated that it is willing to look through higher inflation expectations and maintain an easing bias to soften the blow to economic confidence of the ‘Brexit’ vote.
Euro
The Pound to Euro exchange rate skidded to a new three-year low yesterday as Sterling’s disastrous post-‘Brexit’ performance persisted. GBP/EUR is now around 16 cents weaker than the evening of the EU referendum.
This week sees three high-profile UK data releases pertaining to the period immediately following the historic vote: CPI inflation, unemployment and retail sales. Of the three, Thursday’s retail report could be the most influential in terms of the Sterling exchange rate because Britain’s best hopes of avoiding recession over the next 6-12 months revolve around a resilient consumer sector. The median market consensus is for a monthly rise in sales volumes of 0.1%, but any early signs of slowdown in the sector could prompt another bout of Sterling selling.
US Dollar
‘Cable’ tumbled by around half a cent yesterday to hit a fresh monthly low as BoE stimulus bets and record low government bond yields repelled speculative investors.
In the United States this afternoon data is tipped to show that consumer prices dipped from 1.0% to 0.9% in July, while industrial production is expected to have slowed from 0.6% to 0.2%. Barring a huge miss, the uninspiring figures will probably not have much of an impact on GBP/USD.
The ‘Greenback’ has seen demand tail-off over the past seven days due to a downgrade to 2016 Federal Reserve rate hike bets, however, some analysts are looking to Wednesday’s minutes report for signs of hawkish intent. If the Fed statement includes a strong show of support for near-term rate rises then the Pound to US Dollar exchange rate could easily plummet to fresh multi-decade lows. If the central bank communiqué is considered to strike a conservative tone then GBP/USD could hold its ground and possibly mount a minor rally.
Canadian Dollar
The Pound to Canadian Dollar exchange rate ceded another cent yesterday in reaching a new two-and-a-half-year low.
Crude oil prices rose to a near-monthly high at the start of the week as hopes of industry action to curb production fuelled a rally on the commodity market. No doubt this helped to bolster the appeal of the ‘Loonie’ versus the embattled Pound but data shows the relationship between oil and the Canadian Dollar has softened in recent months. The four-week correlation index (where 1.00 equals complete correlation) fell from a yearly high of 0.79 in February to 0.38 last week. Indeed, passenger cars and light trucks have overtaken crude as the nation’s largest export so far in 2016.
Australian Dollar
Sterling depreciated by around a cent yesterday against the Australian Dollar as GBP/AUD fell to yet another new two-and-a-half-year low.
The risk-correlated ‘Aussie’ appears to have gained support from plucky traders, who reckon that the Chinese government could launch further stimulus imminently to combat a recent dip in economic indicators. The Australian Dollar stands to gain if China does implement new stimulatory measures because China is a large buyer of Australia’s mining exports.
New Zealand Dollar
The Pound traded lower by around a cent against the New Zealand Dollar yesterday ahead of today’s key dairy auction. The ‘Kiwi’ was also buoyed by expectations of a mammoth drop in the nation’s unemployment rate; traders are primed for a sharp slide from 5.7% to 5.2%, which could persuade the Reserve Bank of New Zealand not to slash rates any further over the next few months.
Data Released
09:30 GBP Consumer Price Index (YoY) (JUL) High 0.5%
10:00 EUR German ZEW Survey (Economic Sentiment) (AUG) Medium 2
13:30 USD Consumer Price Index (YoY) (JUL) High 0.9%
14:15 USD Industrial Production (JUL) Medium 0.2%
NZD Dairy Auction Avg. Winning Price MT (AUG 16) High $2,436
23:45 NZD Unemployment Rate (2Q) High 5.2%