Talk of Winding Down QE Fails to Lift Sterling
The Pound remained at depressed levels versus most of the majors yesterday as markets continued to bet that the Bank of England would not be tightening policy anytime soon.
Lord Macpherson of Earls Court, who was permanent secretary to the Treasury from 2005 to 2016, caused a bit of a stir yesterday by comparing quantitative easing to heroin. Macpherson said that QE required ‘ever increasing fixes to create a high, Meanwhile, negative side effects increase”, before concluding that it was ‘time to move on’.
Despite Lord Macpherson’s, and other critics of QE’s, concerns, the BoE does not appear likely to begin unwinding its asset purchasing scheme anytime soon. Rumours that the Federal Reserve and European Central Bank are planning to wind down QE have surfaced in recent months, however, due to Brexit uncertainties, there is little appetite at Threadneedle Street for such a move.
Pound to Euro Exchange Rate Strikes New 10-Month Low
The Pound to Euro exchange rate tumbled by around a third of a cent yesterday to strike another new 10-month low.
There was little direct economic stimulus on the day yesterday, which suggested that the move lower in GBP/EUR was a continuation of the recent downtrend that has seen Sterling slump -9 cents versus the single currency since May.
Later this morning a survey of German economic sentiment is expected to dip from 86.4 to 85.2, however, the mild drop in the ZEW index is unlikely to have a material impact on demand for the Euro.
Pound to US Dollar Recovers From 5-Week Low
‘Cable’ rebounded by around a third of a cent yesterday, having struck a five-week low on Friday afternoon. Technically, the pair looks set for further losses if it cannot reclaim a perch above the psychologically significant 1.30 handle.
However, there is potential for a shift in fortunes later in the week when Federal Reserve Chairwoman Janet Yellen gives a speech at the Jackson Hole symposium.
If Yellen gives any concrete information on the central bank’s desire to tighten policy by raising interest rates again this year or unwinding its QE programme then the ‘Greenback’ is liable to rally. However, if Yellen hints at a more cautious, wait-and-see approach to monetary policy in the tail-end of 2017 then it could drive Sterling shooting higher versus the US Dollar.
Pound to Canadian Dollar Flat Ahead of Canadian Retail Sales Report
The Pound to Canadian Dollar exchange rate fluctuated in a tight range yesterday with no real directional bias. We could see a little more concerted price action this afternoon when new Canadian retail data is released.
Markets are primed for a monthly rise of 0.2% in sales volumes, however, a score in this region could prove a drag on the ‘Loonie’, as the retail sector experienced more robust growth of 0.6% previously.
Pound to Australian Dollar Exchange Rate Hovers Above 5-Month Low
Sterling remained close to five-month lows against the Australian Dollar throughout yesterday’s session, however, the Pound narrowly managed to avoid touching a new trough. Later in the week we could see GBP/AUD recover somewhat if Sterling is treated to a sturdy UK GDP report. However, the market consensus suggests that British growth remained soft at 0.3% in the second quarter.
Pound to New Zealand Dollar Exchange Rate Holds Flat
The Pound to New Zealand Dollar exchange rate did not sustain further losses on Monday, nor did it post any lasting gains. Sour sentiment towards Sterling suggests that the UK currency may struggle to mount a serious recovery against the ‘Kiwi’ unless we see a shift in Brexit expectations or a serious uptick in UK economic fundamentals.
Data Released Today
10:00 EUR German ZEW Survey (Current Situation) (AUG) Medium 85.2
13:30 CAD Retail Sales (MoM) (JUN) Medium 0.2%