Sterling
The Pound traded without any fresh directional bias yesterday. The latest report from the Confederation of British Industry showed the largest slide in total orders since February, with the index plunging from -5 to -17 in September. However, currency traders were largely unmoved by the figures because political developments have come to represent the biggest threat to the UK currency over the last few months.
The fear of a ‘hard Brexit’, whereby Britain would sacrifice access to the EU’s single market in exchange for tighter controls on immigration, has been the main driving force behind Sterling’s performance of late. The Pound rebounded slightly last week when it was announced that parliament will most likely get the chance to vote on the government’s ‘Brexit’ trade agreement, which suggests that any deal seen to pose excessive risks to the domestic economy will likely not gain ratification.
Euro
Sterling softened slightly from a fortnightly high against the single currency yesterday as upbeat Eurozone PMI figures bolstered the appeal of the Euro.
The manufacturing PMI rose to a two-year high of 53.3 in October, while the composite index jumped unexpectedly from 52.6 to a 10-month high of 53.7. The sturdy private sector figures suggest quarterly growth of around 0.4%, up from 0.3% previously.
Some of the more hawkish analysts out there said that the data signalled that the currency bloc was ready for a tapering of the European Central Bank’s QE programme. A winding down of QE is not out of the question at this juncture, however, it is unlikely and that’s why the Euro was restricted to gains of around a fifth of a cent. The majority of forecasters now expect the ECB to announce an extension of the asset purchasing programme in December, but they do not anticipate a higher monthly target.
US Dollar
The US Dollar also benefitted from a decent PMI result, with the October manufacturing report rising unexpectedly from 51.5 to a yearly high of 53.2. The consensus among investors is that the Federal Reserve will opt to raise interest rates in December and yesterday’s robust figures were seen to further cement that outlook.
The Pound to US Dollar exchange rate could soften a little bit this afternoon if markets react negatively to Bank of England Governor Mark Carney’s testimony on ‘Brexit’ at the House of Lords. Carney is likely to reaffirm his position that ultra-loose policy was needed to soothe the impact of the referendum vote in August and if he talks up the possibility of future easing then we could see the Pound weaken. However, if the BoE Governor decides to rule out another rate cut then we could see Sterling gain a little bit of ground versus the ‘Greenback’.
Canadian Dollar
The Pound inched higher by just under half a cent against the Canadian Dollar yesterday as markets reacted to concerning remarks from Iraq regarding the proposed OPEC production deal.
OPEC intends to agree on a deal to curb production in order to push prices higher, however, Iraq recently stated that it wanted to be exempt from the agreement. The spanner in the works drove oil prices lower by around -2% and subsequently demand for the commodity-correlated ‘Loonie’ also declined.
Australian Dollar
Sterling lost a little bit of ground versus the Australian Dollar yesterday but recovered all of its losses by the end of the London session.
New Zealand Dollar
GBP/NZD ticked higher by a cent yesterday as bets of a Federal Reserve rate hike in December appeared to dampen risk sentiment and put downward pressure on the risk-sensitive ‘Kiwi’ Dollar.
Data Released
09:00 EUR German IFO – Business Climate (OCT) Medium 109.6
15:00 USD Consumer Confidence (OCT) High 101
15:30 EUR ECB President Draghi Speaks in Berlin Medium
15:35 GBP Carney Appears at House of Lords Economic Committee Medium