Sterling
The Pound stumbled at the start of yesterday’s session in response to news that UK mortgage approvals fell at a faster-than-expected rate in July. The Bank of England’s report showed that loans for house purchases dropped from 64,152 to 60,912 following Britons’ decision to vote out of the European Union.
However, Sterling managed to mount a mini rally versus most of the majors during the afternoon as hawkish Federal Reserve sentiment reduced the appeal of currencies that are perceived to be susceptible to global risk trends.
Euro
The Pound to Euro exchange rate benefitted from a worse-than-anticipated German inflation report yesterday.
Analysts had expected the currency bloc’s largest economy to witness an acceleration in price pressures from 0.4% to 0.5% in August, however, the underwhelming report showed that consumer prices remained steady at 0.4%. Although the mild underperformance may not have a massive impact on monetary policy in Europe, the result will make it a little bit more difficult for policymakers at the European Central Bank to decide how to act in September.
Most traders predict that the ECB will hold off on further stimulus this month and market futures rates suggest just a 36% chance of an additional rate cut by the end of the year. This means there is a lot of scope for Euro weakness if economic data deteriorates and stimulus bets were to proliferate over the next few months.
Keep an eye out for Eurozone unemployment and consumer price index reports this morning: any disappointing figures could heap pressure on the single currency.
US Dollar
‘Cable’ tumbled by around a quarter of a cent yesterday as surging Federal Reserve rate hike bets bolstered the appeal of the US Dollar.
Following hawkish sentiments from Stanley Fischer on Friday, the Fed Vice Chair remarked that the US economy is ‘very close to full employment’ yesterday, which helped boost hopes of a rise in Fed interest rates by the end of the year. Demand for the ‘Greenback’ was also buffeted by news that US consumer confidence rose unexpectedly from 96.7 to 101.1 in August.
Canadian Dollar
It was a mixture of Fed rate hike bets and crude oil declines that helped Sterling register a 50-pip gain versus the Canadian Dollar yesterday. Some analysts noted that a deal to curb oil production between the world’s major oil-producing nations is a long way off and may well not materialise, which helped push oil prices lower by around 1.5%.
The ‘Loonie’, however, could receive a bump higher this afternoon if Canadian GDP data shows, as anticipated, that the economy rebounded from a -0.6% contraction in May with a 0.4% expansion in June.
Australian Dollar
Sterling leapt higher by over a cent against the Australian Dollar yesterday. The move was almost entirely driven by global risk aversion flows, with investors reluctant to take out positions denominated in the volatile ‘Aussie’ ahead of a potential piece of monetary tightening from the world’s most powerful central bank – the Federal Reserve.
New Zealand Dollar
The New Zealand Dollar also suffered from Fed rate hike bets as downbeat risk sentiment helped the Pound rally by around 60 pips even though domestic data pointed to a cooling of the UK housing market.
Data Released
10:00 EUR Euro-Zone Unemployment Rate (JUL) Medium 10.0%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (AUG) High 0.3%
13:30 CAD Gross Domestic Product (MoM) (JUN) Medium 0.4%
13:30 CAD Gross Domestic Product (YoY) (JUN) High 1.0%