Sterling
Dark mutterings that Bank of England Governor Mark Carney might not stay for the full eight-year term at Threadneedle Street put pressure on the Pound over the weekend. However, the Governor held a meeting with Prime Minister Theresa May yesterday and a spokesperson from 10 Downing Street said that Carney was ‘absolutely’ the right man for the job. Later in the day the Governor announced that he would stay on until 2019, 12 months longer than initially planned but less than the maximum stint of eight years. The news bumped Sterling higher during the afternoon.
The prospect of Carney leaving his post early was concerning for holders of the Pound a) because the Canadian central banker is seen as an elite policymaker, having steered the North American nation through the financial crisis relatively unscathed, b) because markets prefer stability to uncertainty and c) because Carney has faced political scrutiny in recent weeks for his outspoken views on the potential consequences of ‘Brexit’, which means that if he were to leave the BoE’s independence would be thrown into doubt.
Sterling could have suffered serious losses if markets believed that The Old Lady of Threadneedle Street had been compromised by political interference, so its no surprise that the UK currency rallied following the announcement from the PM’s office.
Euro
The Pound to Euro exchange rate strengthened by around a third of a cent yesterday as markets breathed a sigh of relief that BoE Governor Mark Carney would stay on until 2019.
Data in Europe showed that consumer prices accelerated from 0.4% to 0.5% in October, which failed to ignite demand for the single currency because CPI is still running significantly lower than the European Central Bank’s 2.0% target, despite the bank’s expansive easing scheme. Additionally, it was reported that the currency bloc maintained quarterly growth of 0.3%, and yearly growth of 1.6%, in the third quarter. Again, the data did little to attract investment in the Euro.
This morning sees Markit release its UK manufacturing PMI results for October, which are expected to show that factory output decelerated slightly from 55.4 to 54.5 last month. Anything higher could bolster the Pound while anything lower could hurt the world’s oldest currency.
US Dollar
‘Cable’ rallied by around 50 pips yesterday afternoon thanks to BoE Governor Mark Carney’s decision to end the uncertainty and pledge an extra 12 months to his role at the helm of the British central bank.
US data showed that personal spending rebounded from a -0.1% contraction in August with a +0.5% increase in September, which added to the chorus of calls for the Federal Reserve to raise interest rates in December. This afternoon’s data is tipped to show that American manufacturers saw output accelerate mildly from 51.5 to 51.7 in October. Current market pricings suggest a 69% chance of a Fed rate hike in December but we will learn more following this week’s Fed announcement and non-farm payroll report.
Canadian Dollar
The Pound to Canadian Dollar exchange rate held firm throughout most of yesterday’s session, rallying by around half a cent on the Carney news, ahead of important events in Canada today.
Carney’s successor at his previous post at the Bank of Canada, Governor Stephen Poloz, is due to speak in Vancouver later this afternoon, which could give investors clues as to whether the BoC really does intend to leave rates on hold for 18 months – as was suggested previously. Another key event for the ‘Loonie’ is the August GDP report, which is anticipated to see annualised growth print at 1.3% and monthly GDP come in at 0.2%.
Australian Dollar
Sterling strengthened slightly against the Australian Dollar yesterday. Demand for the Pound was bolstered during the afternoon as a positive statement on BoE Governor Mark Carney’s future boosted hopes of central bank stability.
New Zealand Dollar
GBP/NZD leapt higher by over half a cent yesterday ahead of data due for release today looking into how well New Zealand’s labour market and most important export sectors are performing. The latest dairy auction results are due during the afternoon, and the ‘Kiwi’ Dollar is liable to strengthen on a strong reading but could easily depreciate if the auction sees a drop in dairy produce value. During the evening New Zealand is expected to maintain an unemployment rate of 5.1%.
Data Released
09:30 GBP Markit UK PMI Manufacturing SA (OCT) Medium 54.5
12:30 CAD Gross Domestic Product (YoY) (AUG) High 1.3%
12:30 CAD Gross Domestic Product (MoM) (AUG) Medium 0.2%
14:00 USD ISM Manufacturing (OCT) High 51.7
15:45 CAD Bank of Canada Governor Poloz speaks in Vancouver Medium
21:45 NZD Unemployment Rate (3Q) High 5.1%