Sterling
The Pound put in a more respectable performance yesterday, drifting higher against most of the majors in reaction to a fairly upbeat speech from Bank of England policymaker Kristin Forbes.
Forbes claimed that the UK has responded better-than-anticipated to the shock of voting to leave the European Union in June. The BoE official admitted that analysts do not know how long the British economy will continue to advance at the current pace but suggested that no further stimulus was required unless data started to deteriorate. The key quote which lifted demand for Sterling was: ‘I am not yet convinced additional monetary easing will be necessary to support the economy’.
Euro
The Pound to Euro exchange rate ticked slightly higher yesterday afternoon following Kristin Forbes’ encouraging comments on the British economy. Sterling sentiment was also boosted by dark mutterings that British officials had begun discussing the potential ‘Brexit’ deals that could be available to the UK with EU leaders.
The single currency, on the other hand, was not helped by comments from European Central Bank Chief Mario Draghi, which appeared to carry a message to banks: ‘stop complaining about negative interest rates’. Draghi’s robust defence of negative rates focussed on their ability to inflate asset prices and prevent debt defaults. Although the probability of additional ECB easing did not soar following Draghi’s remarks, the dovish remarks still put a little bit of pressure on the Euro.
US Dollar
‘Cable’ appreciated by around half a cent yesterday as markets continued to pull out of the US Dollar following the Federal Reserve’s decision not to raise interest rates in September.
The Fed left the door open to a rate hike in November, but the majority of investors expect the US central bank to wait until December – after the Presidential election – to finally hit the trigger. Policymakers indicated at the start of the year that rates would be raised four times in 2016 but issues relating to global economic uncertainty – China and ‘Brexit’ – plus a domestic slowdown mean that only one piece of monetary tightening is expected this year.
Data yesterday showed that US existing home sales shrank by -0.9% in August and that an index of leading economic indicators tumbled -0.2%, which appeared to corroborate the Fed’s decision to hold fire for now.
Canadian Dollar
Sterling strengthened by around a quarter of a cent against the Canadian Dollar yesterday, rising from a three-week high, as markets reacted favourably to BoE official Kristin Forbes’ upbeat assessment of the post-‘Brexit’ UK economy. The ‘Loonie’ was also bothered by remarks from Bank of Canada Governor Stephen Poloz suggesting that interest rates could be lowered further in Canada.
Australian Dollar
Sterling recovered from a monthly low against the Australian Dollar yesterday, rallying by around 30 pips as traders reacted to sanguine remarks from BoE policymaker Kristin Forbes. It also seems like profit-taking played a part in the Pound’s gains, with traders taking advantage of the monthly low GBP/AUD rate.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate rebounded from an all-time low yesterday as sentiment towards the UK currencies received a boost from surprisingly upbeat comments from a central bank official. GBP/NZD managed to rally by around 150 pips on the day to snap a six-day losing streak.
Data Released
09:00 EUR Markit Eurozone Composite PMI (SEP P) Medium 52.8
13:30 CAD Retail Sales (MoM) (JUL) Medium 0.2%
13:30 CAD Consumer Price Index (YoY) (AUG) High 1.4%
14:45 USD Markit US Manufacturing PMI (SEP P) Medium 52