Updated: Sterling Sentiment Plummets as Banks Warn of London Exodus
The Pound tumbled over a cent in trade against the New Zealand Dollar on Wednesday following a report from the FT that a number of Banks met with US commerce secretary Wilbur Ross behind closed doors last week.
Executives from banks including JPMorgan Chase, Goldman Sachs and HSBC, warned Ross that the uncertainty of Brexit was likely to force them to move thousands of staff out of the City of London as they are start preparing for a ‘worst-case’ scenario.
The report was a major blow to Sterling as it suggests that the City is on its way to losing its status as the centre of European banking.
Today’s Currency Headlines
Sterling rises versus most majors – Worst October of retail sales since 2008.
GBP/EUR stabilises – Eurozone retail sales beat forecasts.
‘Cable’ down slightly – December Fed rate hike bets support US Dollar.
Cautious BoC weighs on rate hike bets – GBP/CAD up 70 pips.
Pound Sterling Exchange Rates Rise Despite Retail Slump
Pound Sterling exchange rates ticked higher versus most of the majors yesterday despite data from the British Retail Consortium suggesting that UK retailers suffered the worst October since 2008 last month.
Following on from a -12% dip in October new car sales, the -1.0% slide in retail sales adds to concerns that British consumers are tightening their purse strings.
Indeed, consumer price inflation is running at 3.0%, its highest level for over five years, while average earnings are dithering at 2.2%.
This fall in real wages appears to be weighing on UK consumer sentiment and some analysts believe that the Bank of England was wrong to raise interest rates last week.
Whether the first rate hike in over a decade or not was warranted remains to be seen, but weak consumer sentiment is unlikely to persuade the BoE to alter its current, dovish policy outlook.
Sterling may continue to drift higher following last week’s steep declines, however, the prospect of just two further rate hikes between now and 2020 is likely to limit and gains that are forecast.
Pound to Euro (GBP/EUR) Exchange Rate Stabilises in Quiet Week
The Pound to Euro exchange rate inched ever-so-slightly higher yesterday as European Central Bank President Mario Draghi told European banks to cut costs instead of blaming the bank’s loose policy for low profits.
Draghi claimed there was little evidence that negative interest rates were having an adverse impact on banking profitability, which reduced the appeal of the single currency as it was seen as a sign that the ECB has no plans to tighten policy anytime soon.
A separate report showed that annualised Eurozone retail sales volumes accelerated from 2.3% to 3.7% in September. While this was significantly higher than expectations of 2.8%, it failed to boost the single currency versus Sterling.
Pound to US Dollar Exchange Rate Slides as December Fed Rate Hike Bets Mount
A broadly stronger US Dollar registered gains of around 25 pips against the Pound yesterday.
Expectations of a 25 basis point rate hike from the Federal Reserve in December are liable to support the ‘Greenback’ over the next few weeks, however, technical trading patterns could limit the US Dollar’s gains.
If the GBP/USD exchange rate were to tumble -150 pips, the pair would run into significant psychological support that could easily trigger a rebound in favour of Sterling. But if this support level were to fail it could open the door to significant Pound Dollar losses.
Pound to Canadian Dollar Exchange Rate Rallies as Cautious BoC Weighs on Rate Hike Bets
The Pound to Canadian Dollar exchange rate rallied by around 70 pips yesterday and could go on to pickup momentum in the near future.
In a speech yesterday evening, Bank of Canada Governor Stephen Poloz said the bank would be ‘cautious in making future rate changes’ but suggested inflation was still on track to rise towards the bank’s 2.00% target over time.
Markets drove the Pound a little bit higher versus the ‘Loonie’ following the statement, in a sign investors do not expect the BoC to tighten policy over the next few months.
Pound to Australian Dollar Exchange Rate Up Ahead of RBA Inflation & Growth Forecasts
The Pound to Australian Dollar exchange rate appreciated by around a cent during yesterday’s session following the Reserve Bank of Australia’s decision to leave interest rates on hold at 1.50%.
The RBA saw positive developments in the labour market and the non-mining sector (so crucial in Australia’s drive to rebalance following the mining boom), however, it was also noted that inflation is lower than it was at the beginning of the year.
The next big event for the ‘Aussie’ Dollar is Friday’s RBA inflation and growth forecasts. If the report sees a downgrade to the outlook for CPI and GDP then the Antipodean currency could suffer a pummelling as rate hike bets recede. On the other hand, a surprise to the upside could bolster the appeal of the ‘Aussie’.
Pound to New Zealand Dollar Exchange Rate Could Gain on Dovish RBNZ
Sterling strengthened by around 80 pips versus the New Zealand Dollar yesterday as markets punished the ‘Kiwi’ for a drop in the price of the nation’s most lucrative export, dairy.
The latest dairy auction saw prices tumble -3.5%, marking the third consecutive time that prices have fallen.
The slide only adds to expectations that the Reserve Bank of New Zealand will avoid raising interest rates later this evening, which could allow GBP/NZD to register further gains – especially if the RBNZ employs dovish rhetoric.
Data Released Today
20:00 NZD RBNZ Official Cash Rate (NOV 09)