Sterling
Sterling mounted a mild recovery versus most of the majors yesterday following a string of steep losses last Friday.
Confidence in the Pound weakened at the end of last week’s session in response to Bank of England Governor Mark Carney’s suggestion that rates would probably be cut again in November. Sentiment was also dealt a blow by remarks from BoE policymaker Kristin Forbes indicating that the central bank was happy to let the domestic currency weaken, in order to reduce the burden of Britain’s negative trade balance. Meanwhile remarks from UK Chancellor Phillip Hammond hinting that the government could sacrifice access to the single market to ensure controls over immigration also weighed on demand for the Pound.
Euro
The Pound to Euro exchange rate ticked higher by around a quarter of a cent yesterday but remains around a cent weaker than it was on Friday morning.
There were no significant UK or European data releases yesterday, however, there were a couple of low-impact ecostats. Lloyds Bank reported that its latest index of British business confidence tumbled to a four-year low in the aftermath of the ‘Brexit’ vote as expectations for sales and profit growth dipped from 38% to 12%. Meanwhile Eurostat released data showing that European builders saw a 1.8% jump in activity during July, which represented the largest monthly jump in output since January. Neither figure had a perceptible impact on demand for GBP/EUR.
US Dollar
Sterling drifted higher by around half a cent against the US Dollar yesterday as markets looked to lock-in profit from the monthly low that ‘Cable’ slid to last Friday.
It looks to be an interesting week for GBP/USD because the Federal Reserve is due to announce monetary policy for September on Wednesday evening. Market analysts reckon there is a 12% chance that the Fed will raise rates this week, which means that most traders are hoping for a hawkish message rather than a hawkish move at this juncture. However, the market was wrong about Lehman in 2008 and it was wrong about ‘Brexit’ on June 23, so we cannot rule out the possibility of a surprise hike.
If the US central bank tightens policy then we could easily see GBP/USD tumble sharply – two cents would take the Pound to a new three-decade low. If the Fed hints at a future hike, this will also probably take its toll on ‘Cable’. Conversely, a neutral statement from Fed Chairwoman Janet Yellen could give the Pound an unexpected leg-up against the ‘Greenback’.
Canadian Dollar
The Sterling to Canadian Dollar exchange rate struggled for meaning yesterday. GBP/CAD fluctuated with no real directional bias, and to little consequence: the pair ended for the day pretty much exactly where it began.
Australian Dollar
Sterling declined by around a cent against the Australian Dollar yesterday as traders continued to bet against a dose of monetary tightening from the Federal Reserve. The Fed’s neutral outlook appears to support the risk-sensitive ‘Aussie’ as it suggests that the world’s most powerful central bank will continue to offer credit at ultra-low levels for longer. However, it is entirely possible that demand for the Antipodean currency could collapse later this week if the US central bank strikes a hawkish tone and makes a strong case for higher rates before the end of the year.
New Zealand Dollar
The ‘Kiwi’ Dollar advanced by over half a cent against the Pound yesterday ahead of the latest GlobalDairyTrade dairy auction. Prices rose at the last auction, which bolstered the appeal of the ‘Kiwi’ Dollar, but any signs of price falls could easily apply some downward pressure to the New Zealand Dollar.
Data Released
NZD Dairy Auction Avg. Winning Price MT (SEP 20) High $2,920