Sterling
The Pound weakened across the board yesterday in response to the British government’s call for parliament to respect its schedule of invoking Article 50 in March of next year.
Downing Street accepted a call from the Labour Party to disclose its Brexit plan before officially beginning the two-year divorce process, which gave the Pound a little bit of a boost earlier on in the week. However, UK sentiment was negatively impacted by the news that government was still planning to exit the EU very soon, dampening hopes of a delay to Brexit.
UK data also contributed to Sterling’s woes yesterday, with industrial production tumbling at the fastest pace since 2012. Calls for a 0.2% expansion to the industrial sector in October were confounded by a disappointing print of -1.3%. Manufacturing output also underperformed, sliding -0.9% compared to forecasts of +0.2%.
Euro
The Pound to Euro exchange rate softened by around a cent yesterday, marking a three-cent depreciation from Sunday’s four-month high.
It was a combination of uninspiring UK data and early Brexit concerns that drove GBP/EUR lower yesterday. However, we could see Sterling strike up a new rally this afternoon if European Central Bank President Mario Draghi adopts a dovish tone during his policy statement.
With European inflation anchored well below the bank’s 2.0% target and fears mounting that Italy’s third largest bank could need a bailout, the ECB is likely to bolster its quantitative easing scheme in some form or another. The market consensus call is for a six-month extension to the current €80 billion a month programme, which may not prove too damaging to the single currency. But if Draghi unleashes a more powerful stimulus package, in the form of additional asset purchases or a longer extension then we could see GBP/EUR trade higher.
US Dollar
‘Cable’ lost around three-quarters of a cent yesterday as British sentiment soured following remarks paving the way for a March invocation of Article 50 of the Lisbon Treaty.
In addition to downbeat British industrial and manufacturing prints, yesterday also featured a run of the mill GDP estimate. The National Institute of Economic and Social Research (NIESR) reported that the British economy flatlined at 0.4% in the three months to November. NIESR commented that sturdy service sector activity was acting to prop-up other areas of the economy, such as manufacturing and construction, which it believes to have declined in recent weeks.
The Federal Reserve’s hawkish rate outlook is liable to bolster the appeal of the ‘Greenback’ over the next few weeks and months.
Canadian Dollar
Sterling ceded around -120 pips to the Canadian Dollar yesterday as investors reacted favourably to the ‘Loonie’ following the Bank of Canada’s latest policy announcement. The BoC left rates on hold at 0.50% and stated that domestic growth was solid in Q3 and would likely remain sturdy in Q4. Governor Stephen Poloz’ short statement also featured upbeat remarks on the global economy and this was seen to quash any persistent rate cut fears, therefore bolstering the appeal of the Canadian Dollar.
Australian Dollar
A disappointing Australian GDP print of -0.5%, which was only the fourth decline of this nature in 25 years, gave GBP/AUD a bump higher during the early hours of yesterday morning. Some analysts are now calling for the Reserve Bank of Australia to cut interest rates from 1.50% to 1.00% in 2017. However, souring British sentiment allowed the Australian Dollar to recover versus the Pound throughout the London session.
New Zealand Dollar
March Brexit bets drove the Pound to give up almost three cents to the New Zealand Dollar yesterday. For its part, the commodity-sensitive ‘Kiwi’ was also supported by a positive dairy milk auction result earlier in the week.
Data Released
12:45 EUR European Central Bank Rate Decision (DEC 8) High 0.00%
12:45 EUR ECB Deposit Facility Rate (DEC 8) High -0.40%
12:45 EUR ECB Asset Purchase Target (DEC) High EU80b