Sterling
Sterling drifted higher versus most of the majors yesterday as traders locked in profit from a record number of bets against the UK currency.
Following the Bank of England’s decision to ease monetary policy aggressively at the start of the month, the trend to bet against the Pound reached an all-time net high. There were a record 94,238 net short Sterling positions in the week ending August 16 but following last week’s robust retail and labour market reports some traders have opted to close their positions, thus buying back into the Pound is what is known as a short-covering rally.
These kinds of surges are common when positioning is stretched but they do not always last very long, meaning that Sterling could give back its gains fairly swiftly if analysts continue to anticipate further stimulus measures from the BoE.
Euro
The Pound to Euro exchange rate strengthened by around half a cent yesterday as traders bought back into Sterling to conclude short positions and lock in profit. GBP/EUR is around four cents weaker than it was at the beginning of August.
There were no economic releases of note in Britain or the Eurozone yesterday, however, leaders from the currency bloc’s largest three economies – Germany, France and Italy – did meet on an aircraft carrier in the Mediterranean to discuss how to move Europe forward following Britain’s decision to exit the EU. German Chancellor Angela Merkel, French President Francois Hollande and Italian Prime Minister Matteo Renzi agreed that immigration and the economy were key issues that needed to be tackled but the leaders had different opinions on how prosperity should be achieved. Overall, the symbolic meeting did little to improve confidence in the single currency.
US Dollar
Sterling appreciated by around 70 pips yesterday but the GBP/USD pair looks set to trade within a tight range this week in the run-up to Federal Reserve Chairwoman Janet Yellen’s speech on monetary policy at the Jackson Hole Symposium on Friday.
Fed policymakers have struck a variety of tones, right across the dove-hawk spectrum, over the past few weeks and subsequently traders have little idea how seriously the US central bank is considering raising rates in 2016. Market futures rates currently anticipate around a 50⁄50 chance of further tightening this year. This means GBP/USD could be susceptible to huge volatility on Friday if Yellen strikes a decisive stance one way or the other.
Canadian Dollar
The Pound rose by around 160 pips against the Canadian Dollar to strike a 12-day high yesterday. It was a mixture of short-covering rallies boosting the UK currency and falling oil prices weighing on the risk-sensitive ‘Loonie’ that dictated price movement on a day devoid of any major ecostats.
Australian Dollar
The Pound leapt higher by over half a cent against the ‘Aussie’ yesterday despite forecasts from two of Australia’s biggest banks suggesting that the Antipodean currency will remain stronger for longer than previously projected. ANZ and NAB now expect the Australian Dollar to bottom out in 2018, a full year later than previous forecasts of 2017 due to a perceived less aggressive easing stance from the Reserve Bank of Australia.
New Zealand Dollar
The New Zealand Dollar surged last night thanks to comments from Reserve Bank of New Zealand Governor Graeme Wheeler. The RBNZ Chief said he sees no need for rapid easing, which he claimed could fuel unsustainable growth and stoke the already overheating property market.
Data Released
09:00 EUR Markit Eurozone Composite PMI (AUG P) Medium 53.1
14:45 USD Markit US Manufacturing PMI (AUG P) Medium 52.7