Sterling
The Pound struggled somewhat yesterday as traders continued worrying about the possibility of additional easing from the Bank of England.
Market futures rates suggest that around -5 basis points of rate cuts in November are priced into the UK currency at the moment, however, analysts are preparing for a larger -15 bps reduction. The UK’s 5% debt-to-GDP ratio is one of the worst in the developed world and investors fear that foreign investment could slump markedly when Britain officially exits the European Union. Large budget deficits tend to pressurise floating currencies and there is every chance that Sterling could continue weakening in the longer term – even though the domestic economy has bettered expectations since the ‘Brexit’ vote took place.
Euro
The Pound to Euro exchange rate found itself 50 pips lighter yesterday as downbeat Sterling sentiment weighed on GBP/EUR.
Data from the United Kingdom showed that the number of mortgages approved declined by 900 in August to 60,058 – the lowest figure since November 2014. Economic uncertainty following the EU referendum was blamed for the reduction. Across the Channel in the Eurozone, things looked a little more optimistic, with Germany’s inflation rate rising unexpectedly from 0.4% to a 16-month high of 0.7%. The upbeat report bolstered the appeal of the single currency because it was seen to take some pressure away from policymakers at the European Central Bank to loosen policy further and could bode well for a sturdy number in this morning’s Eurozone CPI print.
US Dollar
Sterling ceded around a quarter of a cent to the US Dollar yesterday due, in part, to an outperforming US GDP report.
The latest revision to the world’s largest economy’s second quarter growth performance showed that, compared to earlier forecasts of 1.1%, the US grew by 1.4% between April and June this year. It was upgrades to business investment and exports that boosted the figure and prompted investors to raise their December rate hike expectations from 53% to 57%.
The ‘Greenback’ was also propped-up by the recent OPEC oil announcement, which is likely to drive up Dollar-denominated oil prices over the next few months and therefore see higher volumes of foreign currency converted into the ‘Buck’.
Canadian Dollar
Following a two-cent depreciation on Wednesday evening, GBP/CAD remained flat for most of yesterday’s session. The commodity-linked ‘Loonie’ rallied swiftly on news that OPEC members had agreed to cut output by 700,000 barrels per day in November.
The agreement is a concerted effort between the world’s major oil producing-nations – bar Russia at this stage – to drive prices higher. However, positive sentiment in oil markets wore off yesterday as investors mulled over the potential pitfalls of the agreement: namely that it could become self-defeating if rising oil prices tempt US shale producers back into the market. Additionally, there are concerns surrounding OPEC members such as Iran, Nigeria and Libya who are currently upping oil production.
Data this afternoon is predicted to print slightly bearishly for the Canadian Dollar, with monthly GDP tipped to have cooled from 0.6% to 0.3% in July, but annualised growth set to remain on track at 1.0%.
Australian Dollar
It was a fairly topsy-turvy day for the Pound against the Australian Dollar yesterday as demand rose and fell like the equaliser of a hi-tech stereo.
The ‘Aussie’ was buoyed by the OPEC deal, which boosted risk sentiment, however, concerns over its efficacy meant that Sterling was able to recover most of its losses.
New Zealand Dollar
Sterling slid by around half a cent against the New Zealand Dollar yesterday as comments from UK trade secretary Liam Fox corroborating speculation that the British government plans to pursue a post-‘Brexit’ trade deal outside of the single market. Sterling suffered in response because investors would prefer the UK to retain as close a relationship as possible with the EU to prevent additional uncertainty.
Data Released
09:30 GBP Gross Domestic Product (YoY) (2Q F) Medium 2.2%
10:00 EUR Euro-Zone Unemployment Rate (AUG) Medium 10.0%
10:00 EUR Euro-Zone Consumer Price Index Estimate (YoY) (SEP) High 0.4%
13:30 CAD Gross Domestic Product (MoM) (JUL) Medium 0.3%
13:30 CAD Gross Domestic Product (YoY) (JUL) High 1.0%
15:00 USD U. of Michigan Confidence (SEP F) Medium 90