Sterling
The Pound was dropped into a bubbling cauldron of anxiety earlier this year when Britain voted to leave the European Union, which prompted a bout of new stimulus measures from the Bank of England. A swanky new polymer £5 note felt a similar feeling this week, when BoE Governor Mark Carney dipped it into a simmering tray of hot curry to demonstrate the fact that it was waterproof. The plucky plastic £5 note survived the ordeal and, although GBP has slumped around -10% since the ‘Brexit’ vote, Sterling looks set to survive its latest run-in with the Bank of England.
Thanks to a substantial rebound in private sector output during August and a couple of sturdy inflation and unemployment reports, analysts are fairly certain that the UK central bank will not opt to unleash any further measures of monetary stimulus during today’s announcement. Market expectations are so low that we may not see much of a boost to the Pound if the BoE follows the script and refrains from further stimulus. On the other hand, a surprise easing decision would probably have a significant negative impact on the UK currency.
Euro
The Pound to Euro exchange rate inched higher by around 30 pips yesterday, rebounding from a new fortnightly low, as British labour data showed that unemployment remained steady at a decade-low of 4.9% in July.
The first UK jobless rate report featuring a full month of post-‘Brexit’ data was encouraging in that it showed little evidence of an immediate impact from the referendum. The number of people out of work fell by -39,000 and the employment total increased at a robust rate of 174,000. The only real negative from the report was that wage growth slowed from 2.5% to 2.3%, however, even that represented a higher score than analysts’ forecasts of 2.1%.
Considering that the British data did nothing to boost BoE rate cut bets and Eurozone data featured a -0.5% dip in industrial production, it seems possible that Sterling could tick slightly higher this afternoon – so long as the BoE does not announce new easing measures.
US Dollar
The Pound rose slightly against the US Dollar yesterday as resilient UK labour data prevented any heavy Sterling selling.
Today’s session could see ‘Cable’ tick slightly higher if markets interpret US data as bearish for the ‘Greenback’. Industrial production is tipped to have shrunk -0.2% in August and manufacturing activity is forecast to have fallen -0.3%, which may make it more difficult for Federal Reserve policymakers to argue the case for higher interest rates in September.
A separate report is anticipated to show that retail sales volumes rose from 0.0% to 0.2% last month, but even that will probably not be considered strong enough to alter Fed hike expectations, which currently suggest about a 20% chance of a rate rise this month.
Canadian Dollar
Sterling appreciated by over 130 pips against the Canadian Dollar yesterday to strike a six-week high as oil prices suffered from speculation that Libya will soon be in a position to re-enter the oil market. US oil inventory data showed that crude stocks shrank by -559,000 barrels last week, beating expectations of a 3.8 million increase, but the report was not enough to lift demand for crude.
Australian Dollar
The Pound to Australian Dollar exchange rate touched a new seven-week high yesterday as the value of some of Australia’s most important export materials tumbled. Global risk aversion, related to fading central bank stimulus bets and fears that the Fed could restart its hiking cycle, weighed on prices for commodities such as copper and iron ore.
New Zealand Dollar
GBP/NZD rallied by around 30 pips following the latest New Zealand GDP report, which showed that the Antipodean economy grew by 0.9% in the second quarter. The slightly underwhelming report confounded forecasts of 1.1%.
Data Released
09:30 GBP Retail Sales (YoY) (AUG) Medium 4.8%
10:00 EUR Euro-Zone Consumer Price Index (YoY) (AUG F) Medium 0.2%
12:00 GBP Bank of England Rate Decision (SEP 15) High 0.25%
12:00 GBP BOE Asset Purchase Target (SEP) High 435b
13:30 USD Advance Retail Sales (AUG) High 0.2%
14:15 USD Industrial Production (AUG) Medium -0.2%
14:15 USD Manufacturing (SIC) Production (AUG) Medium -0.3%