Sterling
The Pound strengthened versus most of the majors yesterday as investors continued to trim bets on the UK currency devaluing rapidly over the second half of the year.
Following a sharp slide in private sector output (the composite PMI struck a seven-year low in July) and an aggressive new bout of stimulus measures from the Bank of England, UK government bond yields dropped to all-time lows earlier this month. The threat of further easing measures from the BoE prompted a record number of traders to bet against Sterling in the middle of August but since then robust labour market and retail sales figures have helped assuage fears, slightly. The Pound has risen at the start of this week’s trading session, however, the potential remains for further downward pressure on Sterling if subsequent data signals that hiring, business investment or consumer sentiment has been dampened by the historic ‘Brexit’ vote.
Euro
The Pound to Euro exchange rate rallied by around 75 pips yesterday to hit its highest level in almost a fortnight as markets continued to lock in profit from previous trades.
Sterling was helped by last week’s sturdy UK economic data stream, but also by a surprisingly poor Eurozone consumer confidence report, which printed at -8.5, disappointing forecasts of -7.7. A separate report pertaining to the currency bloc showed that overall private sector activity expanded at a better-than-anticipated rate of 53.3 in August but that output in the bloc’s largest economy – Germany – slowed from 55.3 to 54.4.
The mixed bag of European data meant that the door is still open for the European Central Bank to loosen policy further, however, it did little to alter investor expectations of how likely that is to happen.
US Dollar
‘Cable’ traded higher by just over around half a cent yesterday, helped by news that British manufacturing output performed mildly better-than-forecast in August.
The recent 12% devaluation in Sterling was seen to have had a positive impact, prompting a surge in demand for UK manufacturing products. Indeed, export orders struck a two-year peak as the currency fluctuation gave Britain a competitive edge.
Data Stateside showed that US factory output cooled from 52.9 to 52.1 in August, but analysts were quick to remind that on a quarterly basis the American manufacturing industry is on track for its best performance so far this year in Q3.
Canadian Dollar
Sterling fluctuated in a tight range versus the Canadian Dollar yesterday before mounting a 50-pip rally during the evening. Short-covering continued to support the Pound, while positive oil developments buffeted the commodity-sensitive ‘Loonie’.
Crude was boosted yesterday by news that major oil producing nation Iran may be willing to cooperate with OPEC to help stabilise oil prices by curbing production. No deal has been done as of yet, and there is a long way to go before the September 26-28 meeting in Algeria, but encouraging soundbites from oil ministers have helped prices recover in recent weeks.
The Canadian Dollar stands to gain if oil continues higher but could easily drop if, as has often been the case in the past, the oil producing nations fail to agree upon a suitable plan of action.
Australian Dollar
The Pound to Australian Dollar exchange rate climbed 130 pips yesterday to strike a 20-day high as traders reduced their negative Sterling bets. It is also possible that Federal Reserve rate hike fears, ahead of Friday’s key Jackson Hole speech from Janet Yellen, were drivers behind GBP/AUD’s daily surge. The volatile ‘Aussie’ Dollar would be expected to weaken if the Fed tightens borrowing conditions but demand for the Antipodean currency could spike if the US central bank sounds a dovish tone.
New Zealand Dollar
Sterling rallied by around a cent versus the New Zealand Dollar yesterday as global risk sentiment suffered ahead of Friday’s highly awaited policy statement from the world’s most powerful central bank.
Data Released
09:30 GBP BBA Loans for House Purchase (JUL) Medium 38500
14:00 USD House Price Index (MoM) (JUN) Medium 0.3%