Sterling
Sterling suffered steep losses yesterday as upbeat domestic data did nothing to quell anxieties related to a potential ‘hard Brexit’.
The September construction PMI rebounded from 49.2 to 52.3 as a surge of residential housebuilding projects took the sector out of the red. However, despite the positive reading, the Pound remained under the cosh as investors continued to sell the UK currency on fears that a clean break from both the European Union and the single market would impact Britain’s ability to attract foreign investment to prop-up its overbearing budget deficit. The Pound hit a series of new lows versus its major currency peers.
There is potential for a little respite this morning if the service sector PMI also prints positively for September. However, the Pound’s long-term outlook looks bleak and we may see further selling pressures over the next few months.
Euro
The Pound to Euro exchange rate slid to another three-year low yesterday as ‘Smexit’ (exit from the single market) bets propelled Sterling on a downward course.
UK Chancellor Phillip Hammond’s decision to abandon his predecessor George Osborne’s plan to erase the deficit by 2020 was a relative no-brainer now that we are pursuing a future outside of the European Union. However, the announcement does also appear to be weighing on the Pound because it suggests the deficit may swell further over the next few years as the government attempts to support economic growth with additional borrowing.
US Dollar
Sterling crashed to a new 31-year low against the US Dollar yesterday, losing another cent as concerns regarding the British government’s plans to make a ‘hard’ cut from the EU led to another pummelling for the Pound.
GBP/USD is now trading at levels not seen since 1985: a time when Ronald Reagan was President of the United States. Sterling managed to rally 150 pips on that occasion due to rumours that Reagan had suffered a heart attack. Barring any health-related issues or acts of God, we may need to see a strong hawkish statement from the Bank of England if we are to see a 150-pip ‘Cable’ rally anytime soon. The outlook looks grim and some analysts are forecasting a further fall to 1.25 and then 1.20 over the next six-to-nine months.
Canadian Dollar
The Pound’s torrid day continued with -100 pips worth of losses against the Canadian Dollar yesterday. The UK government’s apparent tough stance on immigration and sovereign trade agreements is considered negative for Sterling inflows and subsequently markets are forecasting heavy losses for GBP over the next few years. Sterling is now trading at a six-week low versus the ‘Loonie’.
Australian Dollar
The Pound to Australian Dollar exchange rate skidded to a fresh three-year low yesterday. The fact that a forecast from the IMF suggesting that Britain will be the fastest-growing major economy in 2016 did nothing to boost the world’s oldest currency suggests that Sterling could struggle to mount a meaningful recovery anytime soon.
The ‘Aussie’ Dollar, for its part, was lifted by the Reserve Bank of Australia’s decision not to slash rates in October. The RBA left rates on hold at 1.50%, with new Governor Philip Lowe commenting that the bank’s current policies were consistent with sustainable economic growth.
New Zealand Dollar
A one-cent depreciation in GBP/NZD yesterday took the Pound to its lowest level on record versus the New Zealand Dollar. The ‘Kiwi’ saw dairy prices retreat -3% at the latest auction but this was not enough to prevent Sterling sliding to a fresh all-time low.
Data Released
09:30 GBP Markit/CIPS UK Services PMI (SEP) Medium 52.2
10:00 EUR Euro-Zone Retail Sales (YoY) (AUG) Medium 1.5%
15:00 USD ISM Non-Manufacutring Composite (SEP) High 53