Sterling
The Pound registered another positive performance yesterday as Bank of England policy easing fears receded slightly. Although this week’s economic calendar has been conspicuously short of market-moving data releases, the lull has allowed the winds of optimism to creep in – thus buffeting the UK currency higher.
Sturdy post-‘Brexit’ figures – retail, employment and manufacturing export orders – have raised hopes that the aftermath of the historic EU referendum will not be as turbulent as first thought. However, it is still early days and we could easily see heightened volatility in future months if hiring patterns, business investment and property prices are negatively impacted by the decision to leave the European Union.
Euro
The Pound rallied by around 80 pips to strike a fortnightly high against the single currency yesterday as speculative investors continued to cut down on bets of further Sterling weakness. It is difficult to predict how far the recent GBP/EUR rally will go, however, it is worth noting that British government bond yields are close to record lows, meaning that international investors may well opt to pull the plug on Sterling-denominated investments if the prospect of further stimulus from the BoE comes back into focus.
Data yesterday confirmed that the currency bloc’s largest economy grew at an annualised pace of 1.8% in the second quarter. The ecostat failed to exert much of an influence on FX markets, however, because it was widely anticipated and largely priced into the Euro beforehand.
US Dollar
Sterling struck a three-week high against the US Dollar yesterday after registering daily gains of around a third of a cent.
It is possible that sentiment towards the Pound could have been boosted by news north of the border. Scottish government figures showed that revenue from North Sea oil tanked 97% last year, from £1.8 billion to just £60 million. The landslide plunge reflected the turmoil in the oil markets but more importantly: it was seen to reduce the likelihood of further uncertainty in the form of a second Scottish referendum on independence. Scottish First Minister Nicola Sturgeon remains in favour of taking Scotland out of the United Kingdom, however, support within the country may well evaporate if depressed oil prices continue to weigh on government revenue.
Data in the United States showed that existing home sales dipped -3.2% in July, while a British mortgage report revealed that loans for house purchases fell -5.3% in July to strike a one-and-a-half-year low.
Canadian Dollar
Considering that the recent tide of support for Sterling managed to drive GBP/CAD higher on Tuesday when oil prices rallied, it was not surprising to see the Pound jump 50 pips against the commodity-sensitive Canadian Dollar yesterday when crude prices declined.
The drive behind the latest fluctuation in the oil market was a report from the US indicating that crude stockpiles rose by 2.5 million barrels last week, disappointing forecasts of a 500,000 drawdown.
Australian Dollar
The Pound to Australian Dollar exchange rate strengthened by around half a cent yesterday to touch its tallest rate for three weeks as a mixture of Federal Reserve rate hike fears and buoyant Sterling sentiment drove GBP/AUD higher. Federal Reserve Chairwoman Janet Yellen is due to speak at the Jackson Hole Symposium on Friday and some analysts expect the US central banker to strike a hawkish tone, which would pave the way for tighter borrowing conditions and, most likely, softer demand for the growth-linked ‘Aussie’ Dollar.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate traded fairly flatly yesterday as traders remained reluctant to sell the high-yielding ‘Kiwi’ at a time when its central bank is explicitly opposed to further rate cuts.
Data Released
09:00 EUR German IFO – Business Climate (AUG) Medium 108.5
13:30 USD Durable Goods Orders (JUL P) High 3.4%
14:45 USD Markit US Services PMI (AUG P) Medium 51.8