Sterling
The Pound struggled to make any gains against the majors on Friday as British sentiment suffered from some disappointing budget data. Compared to forecasts for an £8.5 billion deficit, September’s figures showed that the British government was forced to borrow £10.6 billion last month to balance the books. The latest budget data shows that during the first six months of the financial year government borrowing came in at £45.5 billion, which is down 5% on last year but very close to the Office for Budget Responsibility’s 12-month target of £55.5 billion. Soft figures for corporation tax and property transactions were to blame for the downbeat result.
Euro
The Pound to Euro exchange rate rose minimally prior to the weekend due to bets that the European Central Bank may loosen policy further in December. During his press conference last Thursday ECB Chief Mario Draghi said that policymakers would use data, due for release in December, to decide how best to alter monetary policy going forward. Draghi claimed that the bank has neither discussed tapering QE or extending it past March next year, which, theoretically, leaves the door open to both.
However, the market reaction on Friday suggests that more traders believe the ECB will continue to boost stimulus than reckon the central bank is readying for a drawdown.
Data on Friday showed that Eurozone consumer confidence printed at -8.0, while this morning’s PMI reports are anticipated to see composite private sector output increase from 52.6 to 52.8 in October.
US Dollar
Cable’ tumbled by around a third of a cent to a four-day low on Friday as poor domestic borrowing figures and harsh words from Europe weighed on demand for Sterling.
During her first EU summit meeting UK Prime Minister Theresa May was told to expect ‘hard’ (French President Francois Hollande) and ‘rough’ (German Chancellor Angela Merkel) negotiations when her government invokes Article 50 of the Lisbon Treaty to start the two-year EU divorce process. Although nothing new, the tough stance of EU leaders is dampening demand for UK assets due to fears that a ‘hard Brexit’ could significantly weaken the UK’s long-term economic future.
Canadian Dollar
Sterling rallied by around a cent to strike a fortnightly high against the Canadian Dollar on Friday in reaction to softer-than-anticipated Canadian retail and inflation data.
Retail sales came in at -0.1%, confounding expectations of +0.3%, while consumer prices printed at 1.3%, which was higher than the previous score of 1.1% but lower than the median forecast of 1.4%. The ‘Loonie’ devalued as traders increased their bets that the Bank of Canada will opt to slash interest rates in the foreseeable future.
Australian Dollar
The Pound touched its highest level in around ten days versus the Australian Dollar on Friday, however, GBP/AUD was unable to hold onto its gains due to overbearing Brexit’ anxieties. Over the weekend, rumours that some of the biggest banks in Britain are planning to move headquarters to the continent made it that little bit harder for Sterling to catch a bid.
New Zealand Dollar
The Pound managed to register gains of around a quarter of a cent versus the New Zealand Dollar on Friday. But due to the volatile nature of the risk-sensitive ‘Kiwi’, the 25-pip rally is unlikely to trigger a subsequent strengthening in Sterling against the Antipodean currency.
Data Released
09:00 EUR Markit Eurozone Composite PMI (OCT P) Medium 52.8
14:45 USD Markit US Manufacturing PMI (OCT P) Medium 51.5