Sterling
With little fresh domestic data to contend with this week it seems that ‘Brexit’ sentiment will probably play a large part in whether the Pound weakens or strengthens.
So far, Sterling has struggled due to growing fears that UK Prime Minister Theresa May’s government is planning to pursue a so-called ‘hard Brexit’, by taking Britain out of the single market in order to gain greater controls over immigration. This is liable to weaken the city of London’s position as a financial centre and would probably prove a negative for GDP. Subsequently, investors have started betting on more aggressive stimulus from the Bank of England in reaction to the ‘hard Brexit’ rumours.
Euro
The Pound to Euro exchange rate, however, managed to recover from a five-week low with an 80-pip appreciation yesterday.
UK retail sales printed at -8 in September, down from -9 in August but Sterling avoided defeat against the single currency due to the ongoing crisis at Deutsche Bank. The German bank saw shares plunge -3% to a fresh all-time low yesterday, which took its toll on the Euro as traders hedged against Eurozone contagion spreading from the most unlikely of epicentres – the German economy.
Often it is the weaker economies of Italy, Spain, Portugal, Greece and Cyprus that worry traders but on this occasion it is the heart of the German banking sector that is suffering from a crisis of confidence. If the situation continues to deteriorate we could see Sterling claw back more of its recent losses versus the single currency.
US Dollar
Market sentiment improved during the early hours of yesterday morning as investors breathed a sigh of relief that status quo Democrat Presidential candidate Hillary Clinton was judged to have won the first round of television debates versus wildcard Republican candidate Donald Trump.
Traders, who prefer constancy to unpredictable change, poured back into financial assets following the contest as risk appetite improved. However, voter sentiment is notoriously fickle in the run-up to US elections and therefore we could easily see further shifts in support over the next two TV debates.
The Pound rose by around half a cent against the US Dollar in reaction to the risk-boosting debate outcome, which prevented the ‘Greenback’ from rallying on upbeat consumer data showing that confidence rose from 101.8 to a nine-year high of 104.1.
Canadian Dollar
Sterling ticked higher by around a quarter of a cent against the Canadian Dollar yesterday as OPEC failed to agree on a deal to curb oil production. The value of crude, which is closely linked to the value of the ‘Loonie’, tumbled -3% as Iran vowed to ramp up output following years of being locked out of international markets. The rift between Iran and Saudi Arabia looks too vast at this stage for any hope of a September deal and this fact was enough to bolster the appeal of GBP/CAD.
Australian Dollar
The Pound tumbled then recovered against the Australian Dollar yesterday. Risk sentiment improved following Clinton’s perceived victory in the primary US Presidential television election, but appetite appeared to wane during the afternoon as traders focussed on the worsening situation at Deutsche Bank. Analysts warn that a Trump victory could boost the US Dollar by around 10% against the ‘Aussie’.
New Zealand Dollar
It was a similar story for the Pound against the New Zealand Dollar yesterday, with GBP/NZD sliding -120 pips to begin with before picking up the pace and rebounding completely during the afternoon.
Data Released
13:30 USD Durable Goods Orders (AUG P) High -1.5%
15:00 USD Fed’s Chair Yellen Testifies Before House Panel High