Sterling
The Pound performed well on Friday morning in response to further signs that the domestic economy coped well with the furore of ‘Brexit’ speculation in the build up to June’s referendum, however, demand for Sterling appeared to tail-off in holiday shortened trade on Monday.
The Office for National Statistics’ (ONS) latest estimate of second quarter growth indicated that the UK economy expanded at a rate of 0.6% between April and June, thanks to strong contributions from household spending and business investment. Encouragingly, the ONS stated that there was no evidence of firms toning down spending in the run-up to the referendum; investment rose 0.5% over the quarter, smashing forecasts of a -0.8% plunge.
Sterling was also boosted by news that British consumer confidence jumped 3.2 points in August to 109.8, marking the largest monthly leap since February 2013. The news helped to assuage fears that the ‘Brexit’ vote may have unsettled Britons’ spending patterns.
Euro
The Pound to Euro exchange rate strengthened by around a quarter of a cent over the Bank Holiday weekend.
Sterling rallied in response to the upbeat UK reports on second quarter economic growth and August consumer confidence and then managed to push ahead a little bit more following statements from Federal Reserve policymakers, which seemed to suggest a higher probability of a rate rise in 2016.
This afternoon sees Germany release inflation data for August, which is anticipated to show that consumer prices accelerated from 0.4% to 0.5%. The numbers could give the single currency a little bit of a bump, as rising inflation could deter officials at the European Central Bank from pushing for further stimulus.
US Dollar
The Pound to US Dollar exchange rate ultimately weakened in response to the Federal Reserve’s latest policy statements at he Jackson Hole Symposium, although ‘Cable’ did initially hit a fresh three-week high during the press conference.
Fed Chairwoman Janet Yellen confirmed that positive labour market movements and improvements in the inflation outlook had strengthened the case for higher rates. However, the Fed Chief was characteristically coy about when such a move might be made.
However, demand for the ‘Greenback’ surged later in the afternoon when Fed Vice Chair Stanley Fischer hinted that the US central bank was considering hiking rates before the end of the year. September rate hike bets rose from 18% to 30% following the afternoon’s events and 2016 hike bets surged from 44% to 60%.
December now looks like the most likely month for the Fed to strike and GBP/USD is now a cent softer than it was before the Jackson Hole Symposium.
Canadian Dollar
The threat of tighter monetary policy south of the border in the US reduced the appeal of the Canadian Dollar over the Bank Holiday weekend, allowing Sterling to rally by around 30 pips.
The commodity-correlated ‘Loonie’ suffered from a pause in oil buying, which was brought about by expectations of higher US interest rates. The problem for crude is that it is priced in US Dollars, meaning that any jump in value of the ‘Greenback’ will make oil more expensive to foreign buyers.
The Pound jumped by over a cent against the Australian Dollar to strike a three-week high on Friday as heightened Fed rate rise expectations weighed on the high-beta ‘Aussie’. However, the Antipodean currency claimed back most of its losses on Bank Holiday Monday, when British traders focussed on honey mustard meat marinades rather than central bank rate expectations and potential yield differentials.
New Zealand Dollar
The New Zealand Dollar followed an almost identical trajectory to the Australian Dollar against the Pound over the weekend: GBP/NZD rallied by over a cent to strike a fortnightly high on Friday evening before falling straight back down on Monday morning.
Data Released
09:30 GBP Mortgage Approvals (JUL) Medium 61.9k
13:00 EUR German Consumer Price Index (YoY) (AUG P) High 0.5%
15:00 USD Consumer Confidence (AUG) High 97