Pound Sterling Sinks on BoE Rate Uncertainty Ahead of Q3 UK GDP Data
Pound Sterling (GBP) exchange rates weakened across the board yesterday and could come under more pressure if today’s UK GDP report disappoints.
Demand for Sterling shrunk following cautionary comments from Bank of England Deputy Governor Jon Cunliffe suggesting that he may not be planning to vote for higher rates next week. Cunliffe said that the 2 November policy decision remained an ‘open question’ and hinted that slowing economic growth could delay the process of monetary normalisation.
Cunliffe’s comments weighed on Sterling and make this morning’s third quarter GDP report even more interesting. Figures inline with market expectations of 0.3% quarterly growth and 1.5% annual growth would likely prop-up demand for the Pound. Anything worse could easily lead to another leg lower, while an upside surprise would certainly boost November rate hike expectations and likely drive Sterling higher.
Pound to Euro (GBP/EUR) Exchange Rate Needs Sturdy GDP Report to Rebound
The Pound to Euro exchange rate lost around -80 pips yesterday as market jitters ahead of November’s BoE rate announcement intensified following cautious comments from the bank’s Deputy Governor.
Over in Europe, spirits were lifted by better-than-anticipated manufacturing PMI data, which came in at 58.8 compared to forecasts of 57.8. However, a drop in service sector output, from 55.8 to 54.9, means that the single currency could easily give back yesterday’s gains if traders are impressed with today’s UK GDP report.
Sturdy US PMI Data Helps GBP/USD Strengthen
GBP/USD tumbled by around -80 pips yesterday as traders sold the Pound ahead of this morning’s British gross domestic product reading. A strong number could give Sterling some reprieve, while a disappointing number could allow the US Dollar to post further gains.
During yesterday’s session the ‘Greenback’ was bolstered by better-than-anticipated PMI data. Manufacturing came in at 54.5, beating forecasts of 53.4, while the service sector printed at 55.9, up from bets of 55.1. The sturdy numbers were seen to boost expectations of another Federal Reserve rate hike in December, while also raising the possibility of subsequent rate rises in the New Year.
Pound to Canadian Dollar (GBP/CAD) Exchange Rate Could Strengthen on Dovish BoC
The Pound to Canadian Dollar exchange rate slid by around half a cent yesterday. However, there is potential for Sterling to rally back versus the ‘Loonie’ during today’s session when the Bank of Canada convenes to set interest rates. Markets anticipate a policy hold at 1.00%, with a fairly strong chance of dovish rhetoric. If the BoC does in fact talk down the prospect of near-term rate rises then it will likely depress demand for the Canadian Dollar.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Looks to UK Growth Data for Direction
Sterling traded in a relatively tight range versus the Australian Dollar yesterday before surging 0.7% on disappointing Australian inflation data, or if the UK GDP report deviates from market forecasts. Anything below 0.3% quarterly growth could damage GBP/AUD, while anything higher would likely boost confidence in the BoE’s ability to start tightening policy in November.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Set for Gains Following Coalition Statement on RBNZ
The Pound to New Zealand Dollar exchange rate looks set for further gains after the New Zealand government announced plans to expand the role of the Reserve Bank of New Zealand. Analysts saw the shift in central bank decision making as a bearish signal and sold the ‘Kiwi’ on fears that rates would not be raised in the near future. Sterling touched its highest level in over 15 months following the policy announcement.
Data Released Today
09:00 EUR German IFO – Business Climate (OCT) Medium 115.1
09:30 GBP Gross Domestic Product (QoQ) (3Q A) Medium 0.3%
09:30 GBP Gross Domestic Product (YoY) (3Q A) High 1.5%
13:30 USD Durable Goods Orders (SEP P) High 1.0%
15:00 CAD Bank of Canada Rate Decision (OCT 25) High 1.00%
15:00 CAD Bank of Canada Releases October Monetary Policy Report High
22:45 NZD Trade Balance (New Zealand dollars) (SEP) Medium -900m