Sterling
The Pound remained fairly sturdy yesterday as the ‘Brexit’ debate turned from matters of jobs, trade, economic growth and immigration to something much more dark and sticky. Yes #MarmiteGate stole the headlines yesterday as Tesco pulled the black vegetable spread from its online store in response to producer Unilever’s decision to raise its pricing. Unilever, which produces Marmite in Burton upon Trent using British ingredients, said that the significant devaluation of the Pound since the EU referendum has weighed on its profits, which are priced in Euros. Unilever announced late in the day that it had solved the dispute with Tesco.
The debacle created a little comic relief following a week of doom and gloom for currency traders, which saw Sterling strike a series of multi-year, and at times multi-decade, lows in reaction to the UK government’s apparent plans to ditch access to the single market in return for tighter controls on immigration. However, the fact remains that the Pound’s recent double-digit depreciation means imported products will become more expensive in the foreseeable future and jobs will likely be lost.
Euro
The Pound to Euro exchange rate remained fairly flat yesterday.
The only piece of economic news released during the day showed that, inline with economists’ expectations, German inflation remained at 0.7% in September. The result had little impact on GBP/EUR as traders did not deem it significant enough to have an impact on the European Central Bank’s policy plans. The ECB may well loosen monetary policy further over the next six months, which would weigh on the single currency. However, there are increasing calls from the Eurozone’s banking sector for President Mario Draghi and co. to taper the QE programme and normalise policy in order to boost bank profitability.
Speaking in Brussels, European Council President Donald Tusk said that there could only be a ‘hard Brexit’, with Britain giving up the majority of the benefits of the EU, or no ‘Brexit’ at all. The remarks will do little to soothe business owners’ fears, with forecasts published in the Financial Times showing that 26,570 UK businesses could fail by 2019 in the event of a so-called ‘hard Brexit’.
US Dollar
‘Cable’ strengthened by around a quarter of cent yesterday but, with December Federal Reserve rate hike bets signalling an almost 70% chance of higher borrowing costs before the year is out, the prospect of further GBP/USD weakness looks entirely likely.
US initial jobless claims printed better-than-anticipated at 246,000 compared to calls for 253,000 yesterday and if today’s advanced retail sales report also impresses there is potential for the US Dollar to rally. Analysts are primed for the retail sales print to rebound from -0.3% in August with a score of +0.6% in September, while investor confidence is tipped to have increased from 91.2 to 92.0 over the past month.
Another event that could influence GBP/USD today is this evening’s speech from Fed Chairwoman Janet Yellen. If the Fed Chief strikes a hawkish tone then it will likely bolster the appeal of the ‘Greenback’ but if she remains on the sidelines it could potentially assist Sterling.
Canadian Dollar
A larger-than-anticipated build up of US crude oil stocks drove demand for the commodity-correlated Canadian Dollar down yesterday, allowing Sterling to register a mild set of daily gains. The latest US stockpile report showed that inventories rose by 4.9 million barrels last week, which weighed on oil prices and, consequently, on the Canadian Dollar.
Australian Dollar
Sterling rose in value by around half a cent against the Australian Dollar yesterday as sentiment in the Asia-Pacific region was damaged by some unexpectedly dire Chinese trade results. The latest report showed that the world’s second largest economy saw exports tumble -10% last month, which put a bit of a downer on demand for the ‘Aussie’, which shares a close trade relationship with China. The fear is that if the Chinese dragon continues to cool it could bode badly for Australia’s exports to China.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate remained flat for most of the day yesterday. ANZ’s consumer confidence index for New Zealand rose from 121.0 to 122.9 in October, which gave the ‘Kiwi’ a little bit of a boost, but demand was compromised by the underwhelming Chinese trade report.
Data Released
13:30 USD Advance Retail Sales (SEP) High 0.6%
15:00 USD U. of Michigan Confidence (OCT P) High 92
17:00 USD Fed Chair Yellen Speaks at Boston Fed Conference High