Sterling
The Pound lost a little bit of ground yesterday as Bank of England Governor Mark Carney left the door open to another rate cut in November.
The BoE voted unanimously to leave interest rates on hold at 0.25% and the quantitative easing target unchanged at £435 billion. Policymakers agreed that recent data had painted a slightly rosier picture of the domestic economy than initially expected, but the general gist of the message was that rates would probably be cut to 0.10%
in November.
Working on the assumption that the bank’s November forecasts won’t deviate significantly from August’s, the minutes from the meeting revealed that ‘a majority of members expected to support a further cut in the Bank Rate to its effective lower bound’.
Euro
Sterling declined by around a third of a cent against the single currency yesterday as traders continued to bet on a probable interest rate cut from the BoE in November.
The Pound had initially traded flatly against the Euro, with demand for Sterling boosted by a report showing that British retail sales accelerated at an annualised rate of 5.9% in August. The robust print suggests that British consumers have, to all intents and purposes, not altered their spending patterns as a result of the historic vote to leave the European Union on June 23.
Data out of the Eurozone showed that consumer price growth remained tepid at 0.2% through August, adding to calls from some quarters for the European Central Bank to do more to stimulate growth. However, the ECB poured cold water on stimulus hopes earlier this month and subsequently the Euro got away scot-free despite the underwhelming CPI inflation print.
US Dollar
The Pound to US Dollar exchange rate slumped to a 30-pip defeat yesterday afternoon in reaction to the dovish message from BoE Governor Mark Carney’s latest policy statement.
With a November rate cut still on the cards, despite recent upticks in domestic data, the Pound appears to be on the back foot against the US Dollar, which could potentially benefit from a rate hike as soon as next week.
However, the probability of monetary tightening from the Fed in September was dealt another blow yesterday when US retail sales data came in softer-than-anticipated. The American retail report showed that sales volumes declined at an annualised rate of -0.1% last month, confounding calls for a 0.2% expansion. US industrial production also disappointed, coming in at -0.4% compared to estimates of -0.2%. September Fed rate hike bets dipped to just 12% following the downbeat releases.
Canadian Dollar
After striking a six-week high in the morning, GBP/CAD bounced lower by around a cent-and-a-half as investors locked in profit before and after the dovish BoE communiqué. The commodity-sensitive ‘Loonie’ was also bolstered by a rise in the oil price, which related to refinery and pipeline problems in the US.
Australian Dollar
The Pound to Australian Dollar exchange rate peaked at a fresh seven-week high yesterday morning in response to data down under showing that the number of people with jobs fell by -3,900 in August. The unexpected jobless spike weighed on the ‘Aussie’ Dollar, even though the headline unemployment rate actually slid from 5.7% to 5.6%.
However, the Antipodean currency clawed back all of its losses during the London session, with GBP/AUD tumbling by over -150 pips.
New Zealand Dollar
Sterling weakened by around a cent against the New Zealand Dollar yesterday as yield-hungry investors sought the relatively high profit margins available in ‘Kiwi’ Dollar-denominated bonds rather than the ultra-low yields offered on UK government debt. The threat of further stimulus from the BoE acted to accentuate this trend following Governor Carney’s speech.
Data Released
13:30 USD Consumer Price Index (YoY) (AUG) High 1.0%
15:00 USD U. of Michigan Confidence (SEP P) High 90.6