Sterling
The Pound rallied initially yesterday when third quarter GDP data showed that the British economy expanded 0.5% in the three months following the EU referendum. The Office for National Statistics, who compiled the report, noted there was ‘little evidence of a pronounced effect’ from the vote. The robust growth print beat estimates of 0.3% but marked a slowdown on the second quarter’s 0.7% expansion.
Later on in the day, however, Sterling gave back most of its knee-jerk gains as investors digested the details of the report. The UK service sector saw output increase by 0.8%, while production, construction and agriculture all witnessed contractions. Around the time of the referendum there had been forecasts of an immediate recession but that looks unlikely – it would take an exceedingly large downward revision. But traders are well aware that the real impact of ‘Brexit’ will not be felt right away, and is likely to kick-in more forcefully once Article 50 has been triggered, and this explains why the Pound found itself under pressure even as GDP impressed.
Euro
The Pound to Euro exchange rate weakened by around half a cent yesterday afternoon as traders overlooked a sturdy third quarter growth report. The lack of conviction in Sterling’s initial rally following the GDP figures suggests that market sentiment towards the UK currency remains weak and bodes badly for hopes of a Sterling recovery.
In another piece of good news for the UK, car giant Nissan announced yesterday that it had received the necessary assurances from Prime Minister Theresa May to go ahead with plans to build the next Qashqai and 4×4 X-Trail in Sunderland. The announcement means that around 7,000 jobs are secure.
However, the conduct of PM May relating to the deal has drawn criticism from Labour’s shadow chancellor John McDonnell, who claims that greater transparency is needed. “Are they [the government] literally going to decide factory by factory which one gets support? We have to have a comprehensive plan”.
US Dollar
Ultimately, the Pound depreciated by around -70 pips versus the US Dollar yesterday even though it did strengthen momentarily during the morning.
The moves in ‘Cable’ contrasted the day’s data releases, with UK GDP impressing and US durable goods orders printing at -0.1%, confounding forecasts of +0.1%. This shows that market positioning is currently very negative on Sterling and indicates that it could take some very surprising news to boost GBP/USD. Barring a change of tack from the government, and a clear message that ministers are going to aim to retain access to the single market, it looks as if the Pound is going to maintain a bearish outlook versus the ‘Greenback’.
The main event on today’s calendar is the third quarter US GDP report, which is tipped to show an acceleration of annualised growth from 1.4% to 2.5%. If the data matches economists’ expectations then the Dollar is likely to rally on enhanced Federal Reserve rate hike bets.
Canadian Dollar
The Pound lost out on around -70 pips against the Canadian Dollar yesterday as upbeat domestic data failed to ignite lasting demand for the UK currency. Demand for Canada’s most lucrative export, crude oil, increased yesterday on rumours that Saudi Arabia is considering cutting oil production by -4% next month. This development supported the commodity-correlated ‘Loonie’.
Australian Dollar
Sterling registered a mild 15-pip daily gain against the Australian Dollar yesterday. Antipodean traders cited a potential overreaction to Wednesday’s encouraging Australian CPI report as reasons for the lack of demand for the ‘Aussie’ on Thursday. It is possible that the Australian Dollar will struggle again today if the US GDP numbers are seen to boost Fed rate expectations.
New Zealand Dollar
A higher-than-expected New Zealand trade deficit reading earlier in the week ensured that the ‘Kiwi’ Dollar was unable to join the party and post gains versus the Great British Pound on Thursday.
Data Released
13:00 EUR German Consumer Price Index (YoY) (OCT P) High 0.8%
13:30 USD Gross Domestic Product (Annualized) (3Q A) High 2.5%
15:00 USD U. of Michigan Confidence (OCT F) Medium 88.1