Sterling
The Pound plummeted across the board yesterday as comments from UK Chancellor Phillip Hammond provided traders with ammunition for another devastating bout of Sterling selling.
Hammond noted that the government has never refused a Bank of England request for quantitative easing in the past and suggested that there was no reason why circumstances would be different in the future. The Chancellor’s remarks put pressure on the Pound because investors interpreted them to mean that the BoE might be on the verge of announcing additional stimulus.
However, the Sterling rout paused during the afternoon when BoE Governor Mark Carney testified to the House of Lords on the impact of the bank’s stimulus scheme but did not drop any hints that policy would be loosened in the immediate future.
Euro
The Pound to Euro exchange rate tumbled by around -80 pips yesterday as British Chancellor Phillip Hammond stoked fears of further QE. Although BoE Governor Mark Carney did not talk-up the possibility of additional asset purchases later on in the day, the central banker did defend Threadneedle Street’s four-pronged August stimulus package and indicated that policymakers would likely look through an expected currency-driven spike in inflation to continue providing the economy with the necessary support.
The single currency, for its part, was boosted by a two-year high German IFO business confidence index print of 110.5 in October, up from 109.5 in September. IFO economist Klaus Wohlrabe commented that the sturdy numbers show that German businesses have now ‘digested’ the ‘Brexit’ vote.
There was also good news for Greece, which finally received its latest €2.8 billion tranche of aid, having been judged by Eurozone officials to have met the economic milestones laid out in its 3rd bailout.
US Dollar
Barring the ‘flash crash’ of a couple of weeks ago Sterling struck its lowest level for 31 years against the US Dollar yesterday. It was a mixture of UK anxieties and rising Federal Reserve rate hike bets that pushed GBP/USD lower by over a cent.
December Fed rate futures moved higher yesterday to suggest a 71% chance of tighter policy in December due to three different reasons: 1) annualised US house prices jumped 6.4% in August, 2) manufacturing output rose to a yearly high in October, and 3) Fed policymaker Charles Evan said that he expects rates to be hiked three times by the end of 2017.
Analysts noted that when ‘Cable’ started to slide yesterday there was a real shortage of traders looking to buy and this contributed to the sharp drop in Sterling pairs across the board.
Canadian Dollar
The Pound to Canadian Dollar exchange rate depreciated by around a cent yesterday as Sterling suffered another market-wide selloff.
Demand for the commodity-correlated ‘Loonie’ was fairly mixed, with investors oscillating between upbeat and cautious regarding the potential for OPEC to agree upon a deal to curb global oil production and bolster prices. Increasing Fed rate hike bets did weigh on the Canadian Dollar but there was nothing to prevent GBP/CAD sliding when markets turned negative on Sterling during the afternoon.
Australian Dollar
The Pound weakened by around a cent-and-a-half yesterday against the Australian Dollar as markets continued to chip away at Sterling.
The Bank of England said in August that monetary policy would probably be loosened in November if economic data followed its forecasts. However, UK data has impressed since then and subsequently markets are unsure whether we will see additional stimulus next month. Comments yesterday from UK Chancellor Phillip Hammond appeared to leave the door open to extra funds for QE, but BoE Governor Mark Carney did not give any explicit hints.
New Zealand Dollar
GBP/NZD devalued by over -150 pips yesterday as global sentiment towards Sterling remained sour. Later this evening data down under is anticipated to show that New Zealand’s trade deficit narrowed slightly in September, which could give the ‘Kiwi’ another little boost.
Data Released
13:30 USD Advance Goods Trade Balance (SEP) High -$60.5b
14:45 USD Markit US Services PMI (OCT P) Medium 52.3
22:45 NZD Trade Balance (New Zealand dollars) (SEP) Medium -1123m