Sterling
Sterling got off to a fairly decent start yesterday as traders digested comments from Bank of England Governor Mark Carney suggesting that the UK’s long-term economic prospects were positive. However, sentiment soured later on in the day when Deputy BoE Governor Minouche Shafik said that she would rather act soon to loosen policy than ‘be on the back foot and do too little too late’.
The contrasting central bank comments meant that the Pound performed neutrally versus most of the majors over the day, but the threat of additional stimulus looks set to remain a negative force on Sterling over the coming weeks and months.
Euro
The Pound to Euro exchange rate ultimately ended the day at the same level that it began. Mixed BoE signals went some way to driving volatility, while markets remained optimistic that the Deutsche Bank crisis wouldn’t spill out of control.
Shares at Deutsche Bank have fallen to record lows as issues over profitability and a $14 billion fine dished out by the US justice department prompted a large scale sell-off. European Central Bank President Mario Draghi told German politicians that the ECB’s negative interest rate policy was not to blame for Deutsche Bank’s current woes and the German government denied that it was preparing emergency funding for the embattled investment bank.
The issue of state funding is particularly prickly seeing as Germany has fought hard over the past few years to prevent failing banks in countries such as Cyprus, Italy and Greece receiving recue funds. If Deutsche Bank were to fall the repercussions could be enormous, however, at this stage that does not seem to be the most likely outcome.
US Dollar
‘Cable’ traded flatly yesterday even though US durable goods orders beat forecasts of a -1.5% decline with an unspectacular 0.0% print.
Later in the day Federal Reserve Chairwoman Janet Yellen spoke to US lawmakers on supervision and regulation in financial markets. The speech was largely focussed on regulatory measures but the central bank chief did mention that most policymakers were ready to raise rates if the domestic economy continued to tick along at the current rate. The hawkish sentiments, however, were little more than we were treated to at last week’s policy announcement and therefore had very little impact on US Dollar trading patterns.
Canadian Dollar
The Pound to Canadian Dollar exchange rate tumbled by around two cents last night as traders reacted to news that the world’s major oil producing nations had agreed on the need to curb output in order to drive prices higher.
Although no deal was agreed in Algeria, oil prices jumped 5% in anticipation of a concrete deal, which is expected to be concluded in November. The makeup of the deal remains unclear; Iran, Libya and Nigeria are trying to raise production following spells of lower output; Venezuela and Algeria are severely suffering from the recent slide in oil revenues; while Saudi Arabia was planning to cool down output over the next quarter anyway. So there remains a lot to be discussed but the breakthrough was certainly greeted well by the oil markets, which boded well for the ‘Loonie’.
Australian Dollar
Yesterday was the kind of day on FX markets that could be described as akin to receiving junk mail on your birthday. Sure, you’ve received post on your birthday but to all intents and purposes you may as well have not.
The Pound to Australian Dollar exchange rate did fluctuate a bit yesterday but, having come full circle by the close of play, it may as well have not.
New Zealand Dollar
A wave of Reserve Bank of New Zealand stimulus calls helped Sterling make some inroads against the ‘Kiwi’ Dollar yesterday. The Pound rose by around 70 pips against the New Zealand Dollar in one of the day’s only significant market moves for GBP.
Data Released
08:55 EUR German Unemployment Rate s.a. (SEP) High 6.1%
09:30 GBP Mortgage Approvals (AUG) Medium 60.2k
13:00 EUR German Consumer Price Index (YoY) (SEP P) High 0.6%
13:30 USD Gross Domestic Product (Annualized) (2Q T) Medium 1.5%