Sterling
Rumours that British Chancellor Phillip Hammond was planning to step down from his post, just over 100 days into the role, hurt the Pound yesterday morning. It was reported that pro-leave cabinet colleagues were not happy with Hammond’s pessimistic approach to negotiations over immigration. Hammond is said to have urged caution over plans to force EU workers to prove they have a guaranteed job before granting them access to the country. A colleague said he was arguing from a ‘very Treasury point of view… seeing the risks of everything rather than the opportunity’.
The potential for instability unsettled the Pound, however, the Prime Minister’s spokesperson did announce that May had ‘full confidence’ in the Chancellor later in the day.
This morning’s big event is the September consumer price index report, which is anticipated to show a surge in price pressures form 0.6% to 0.9%. Sadly, the data is unlikely to bolster the appeal of Sterling because a number of Bank of England policymakers have recently stated that the bank is willing to look through a spike in inflation without reacting by tightening policy.
Euro
The Pound to Euro exchange rate ticked slightly lower yesterday as ubiquitous ‘hard Brexit’ concerns weighed on the UK currency, as did rumours of a spat between some of the most prominent cabinet members. If the situation with Chancellor Phillip Hammond is peacefully resolved it will help, but the fact of the matter is that Britain’s uncertain future is going to remain a negative influence on investor and business confidence.
Indeed, it was reported yesterday that even the UK’s exporters could suffer from ‘Brexit’ tariffs and the weaker Pound, because many products feature convoluted supply chains that cross the Channel multiple times. A number of banks have also recently announced plans to relocate from London to the continent.
European inflation data showed that price pressures accelerated from 0.2% to 0.4% last month but the data print took a backseat to the melee of ‘Brexit’ fears and permutations.
US Dollar
The Pound to US Dollar exchange rate initially declined by around a third of a cent yesterday on the news that Chancellor Phillip Hammond was involved in a row with other Conservative cabinet members.
However, GBP/USD clawed back its losses later on in the day when Federal Reserve Vice Chairman Stanley Fischer said that ‘a variety of factors have been holding down interest rates and may continue to do so for some time’. Fischer was clear that he believed there were good reasons to raise rates from their unconventionally low levels, but holders of the ‘Greenback’ were disappointed by his remarks on the need to provide accommodative policy in order to ‘maintain aggregate demand’ and boost employment without spurring unhealthily high levels of inflation.
The US inflation rate for August was 1.1% but September’s figure is tipped to print at 1.5% tomorrow, drawing US CPI ever closer to the Fed’s 2.0% target. Anything higher than 1.5% could easily bolster the US Dollar by boosting December rate hike expectations – despite Fischer’s cautionary remarks.
Canadian Dollar
Sterling traded fairly flatly versus the Canadian Dollar yesterday as a dip in crude oil prices prevented the ‘Loonie’ registering any fresh gains. Global investor positioning towards the Canadian Dollar improved at the start of the month, with the number of people betting that the ‘Loonie’ would weaken falling from 14,077 to 11,704. The next big event for the North American currency is the Bank of Canada’s interest rate announcement on Wednesday, which is likely to see the BoC leave rates on hold at 0.50%.
Australian Dollar
The Pound to Australian Dollar exchange rate tumbled by around -25 pips pips yesterday as ‘hard Brexit’ anxieties continued to hold back the embattled Pound. Demand for the ‘Aussie’ was slightly higher during the evening after recently appointed Reserve Bank of Australia Governor Philip Lowe said that domestic growth had been running a ‘bit better than expected’ over the past year. Lowe mentioned that next week’s third quarter inflation report would be important in determining whether or not additional rate cuts were needed to drive price pressures back towards the 2.5% target.
New Zealand Dollar
A stronger-than-expected New Zealand consumer price index print of 0.2%, beating forecasts of 0.1%, helped the New Zealand Dollar register a two-cent appreciation against the Pound yesterday.
The most important release related to the ‘Kiwi’ Dollar today will be this afternoon’s dairy auction results. Dairy is the Antipodean nation’s largest export and as such the ‘Kiwi’ is susceptible to rise and fall in tandem with the value of New Zealand’s dairy products.
Data Released
09:30 GBP Consumer Price Index (YoY) (SEP) High 0.9%
13:30 USD Consumer Price Index (YoY) (SEP) High 1.5%
NZD Dairy Auction Avg. Winning Price MT (OCT 18) High $2,880