Sterling
The Pound drifted higher versus most of the majors yesterday, buoyed by the past week’s sturdy UK service and manufacturing PMI results. The private sector’s unexpectedly strong rebound in August has stoked demand for Sterling over the past few days, with analysts opting to reduce bets of further stimulus from the Bank of England.
A recent poll of economists undertaken by Reuters suggests there is just a 10% chance of a rate cut from the UK central bank in September. However, the survey suggests there is a 55% probability of a 15 basis point cut in November, which would probably lead to another period of Sterling weakness. It seems that the BoE’s policy decisions will be driven by upcoming data, meaning that sturdy domestic ecostats should continue to lift the Pound while disappointing readings could apply downward pressure to the UK currency.
Euro
The Pound to Euro exchange rate traded close to monthly highs through most of yesterday’s session, spiking at a six-week high, as jittery traders appeared reluctant to invest in the single currency ahead of Thursday’s policy meeting at the European Central Bank. The ECB is not expected to announce fresh monetary easing measures at this particular meeting but the fear is that President Mario Draghi may use his press conference to pave the way to additional stimulus later down the line.
This morning sees UK industrial production data from July released, which is anticipated to show a 1.9% annual expansion. The data could bolster the appeal of the Pound if it is seen to reinforce the resilient message from the recent PMI surveys.
US Dollar
Sterling surged higher by over a cent to hit a new seven-week high against the US Dollar yesterday, appreciating in reaction to a large miss in the US ISM for non-manufacturing output. The American service sector saw growth decelerate from 55.5 to a six-year low of 51.4, confounding forecasts of 54.9.
‘Cable’ was also boosted by a change of tack from investing giant UniCredit, which had previously been betting on further declines for the Pound against the US Dollar. Citing the better-than-expected UK PMI results, UniCredit now believe that the UK economy could actually strengthen, rather than weaken, over the next few months.
Bank of England Governor Mark Carney is due to speak on monetary policy later this afternoon. The BoE Chief is likely to be grilled on his decision to loosen policy and it will be interesting to see whether he opts to talk up the possibility of more stimulus or retreat into wait-and-see mode.
Canadian Dollar
The Pound to Canadian Dollar exchange rate rallied by around a third of a cent yesterday afternoon as hopes of a deal to curb oil output were dashed. Both Saudi Arabia and Russia showed willingness to stabilise prices but markets regarded the lack of a decisive promise as a sign that negotiations may not prove fruitful. The Canadian Dollar received a bit of a boost from the six-year low US ISM report.
Later this afternoon the Bank of Canada is due to announce its benchmark interest rate for September. Most analysts expect the BoC to leave rates on hold at 0.50% but a surprise rate cut could put significant pressure on the ‘Loonie’.
Australian Dollar
Sterling slipped against the Australian Dollar yesterday as the Reserve Bank of Australia announced it was leaving interest rates on hold at 1.50%. Additionally, risk sentiment was boosted by a soft US economic indicator.
Markets are split down the middle as to whether the RBA will slash rates again this year, which means there is scope for the ‘Aussie’ to devalue if Australian policymakers hit the trigger next time out.
New Zealand Dollar
Federal Reserve rate hike bets were dealt a blow by the underwhelming US ISM report yesterday and subsequently demand for the risk-correlated ‘Kiwi’ flourished. GBP/NZD tumbled over a cent in a knee-jerk reaction to the American print and Sterling suffered further losses when global dairy prices rose 7.7% at the latest auction.
Data Released
09:30 GBP Industrial Production (YoY) (JUL) Medium 1.9%
09:30 GBP Manufacturing Production (YoY) (JUL) Medium 1.7%
14:15 GBP BOE’s Carney, Cunliffe, Forbes, McCafferty Speak in London Medium
15:00 CAD Bank of Canada Rate Decision (SEP 7) High 0.50%