Sterling
Weak UK production and house price data softened the Pound yesterday, with markets concerned that the initial fallout from the Brexit referendum had been more severe than anticipated. Industrial production remained strong, but manufacturing posted a worse decline on the month and slower growth on the year than expected. Halifax house price data printed below forecasts.
Later, the National Institute for Economic and Social Research (NIESR) released its latest GDP report, in which it predicted the UK economy could fall into recession during 2017.
While GBP/EUR fell back to trending around the 1.18 level, Sterling could recover losses against the Euro if the European Central Bank (ECB) adopts a dovish tone this week.
Euro
Germany, usually considered the Eurozone’s powerhouse, once again signalled that its strength was waning yesterday. The Euro softened after industrial production figures posted strong contractions when a slowdown to marginal growth had been expected. Today’s approaching monetary policy meeting also kept traders in check.
The European Central Bank’s (ECB) Governing Council will publish its latest interest rate decisions later today. Markets are expecting any policy adjustments to be restricted to the quantitative easing programme, with interest rates left on hold. In the subsequent press conference, President Mario Draghi may signal further easing is on the way.
US Dollar
Hopes of a 2016 rate hike from the Federal Reserve fluctuated yesterday. At times the Fed Funds futures market showed the markets were expecting policy tightening in December, although only by the narrowest of margins. At other times, the odds were for a February 2017 hike. The Fed’s John Williams helped bring the odds back towards December after remaining hawkish despite the latest data. Overall, the US Dollar remained soft.
US initial and continuing jobless claims data, as well as consumer credit figures for July, will be released later. Initial claims are expected to creep higher by 2,000, but continuing claims is forecast to see a -8,000 drop and consumer credit to swell by almost $4 billion.
Canadian Dollar
The Canadian Dollar had been pushed higher by expectations of an interest rate hold from the Bank of Canada (BOC) on Wednesday. When policymakers delivered, profit-taking ensued, keeping the ‘Loonie’ on mixed form for the rest of the session. Iran signalled that it was willing to support Russian and Saudi Arabian efforts to stabilise the oil markets, boosting sentiment in the oil markets and lending the Canadian Dollar further support.
Canada’s data docket is rather sparse today, although the Bank of Canada’s Tim Lane is set to make a presentation in Thunder Bay this evening.
Australian Dollar
Disappointing GDP figures initially weakened the Australian Dollar, although the ‘Aussie’ was recovering by the end of the European session yesterday. Year-on-year (YoY) growth clocked in at 3.3% as expected for the second quarter, but quarter-on-quarter (QoQ) growth slowed further-than-predicted to 0.5%. First quarter figures were cut by -0.1%.
Further adding to the headwinds for the Australian Dollar was the AiG Performance of Construction Index, which had slumped from 51.6 to a strong contraction score of 46.6. Conflicting sentiment regarding the timeline for further US easing supported risk appetite however and the ‘Aussie’ largely recovered losses.
New Zealand Dollar
The New Zealand Dollar was able to enjoy a surge in risk-appetite yesterday. With the US Dollar still in a weakened state and the Australian and Canadian Dollars not performing particularly well, the ‘Kiwi’ was the high-yield asset of choice for many. A strong rebound in the domestic manufacturing sector during the second quarter also helped.
New Zealand figures for August’s credit card spending will be released towards the end of the day.
Data Released
12.45 EUR European Central Bank Rate Decision (SEP 8) 0.00%
13.30 EUR ECB President Draghi Holds Press Conference
13.30 USD Initial Jobless Claims (SEP 3)
17.05 CAD Bank of Canada’s Tim Lane Presentation in Thunder Bay
23.45 NZD Card Spending Retail (MoM) (AUG) 0.3%