Pound to Euro (GBP/EUR) Exchange Rate Rises, but IMF Downgrades Growth Forecasts
Although the Pound to Euro (GBP/EUR) exchange rate hit new multi-month highs on Tuesday, Sterling was left fluctuating against the other majors as the IMF lowered its UK growth forecast.
The Fund also warned the Bank of England (BoE) to take a more cautious view on monetary policy.
Additionally, Sterling had to contend with a surprise contraction in September’s British Retail Consortium (BRC) like-for-like sales.
However, if today’s UK growth and manufacturing/industrial production figures impress, the Pound’s uptrend against the Euro could continue.
Widened German Trade Surplus Fails to Boost Euro (EUR)
A better-than-expected widening of the German trade surplus in August was not enough to boost Euro (EUR) exchange rates yesterday.
While the headline figure showed improvement, this was driven by a sharp decline in import volumes, with demand for German exports remaining decidedly muted. This kept the single currency under pressure as investors continue to doubt the underlying strength of the Eurozone’s powerhouse economy.
As long as tensions between the Italian government and EU officials show no signs of easing the Euro may struggle to find any support against its rivals.
Cautious Fed Comments Limit US Dollar (USD) Upside
September’s NFIB small business optimism index offered the US Dollar (USD) little in the way of encouragement yesterday, easing from 108.8 to 107.9. USD exchange rates also came under pressure thanks to the latest commentary from Dallas Fed President Robert Kaplan.
As Kaplan indicated that patient and gradual interest rate hikes are required in the coming year the odds of an imminent hike declined. While markets still expect the Federal Reserve to continue tightening monetary policy the remarks were enough to limit the US Dollar’s potential.
Similarly cautious sentiment from other Fed policymakers could put the US Dollar under greater pressure this week.
Weakening House Building Leaves Canadian Dollar (CAD) Under Pressure
A monthly decline in housing starts left Canadian Dollar (CAD) exchange rates on a weaker footing, with confidence in the health of the Canadian housing market diminishing.
Although oil prices picked up once again this was not enough to shore up the Canadian Dollar at this stage. As markets see little cause for confidence in the outlook of the Canadian economy CAD exchange rates remained biased to the downside.
If August’s building permits data also proves disappointing the Canadian Dollar is likely to cede further ground.
Strengthening Business Confidence Boosts Australian Dollar (AUD) Exchange Rates
An uptick in September’s NAB business confidence index offered support to AUD exchange rates yesterday. As the index climbed from 4 to 6 this indicated that sentiment within the Australian economy is improving, albeit slowly. The Westpac consumer confidence index also showed improvement.
Although the IMF lowered its global growth forecasts this was not enough to knock the Australian Dollar back. However, lingering worries over the global trade outlook continue to hang over the antipodean currency, limiting the potential for AUD exchange rate gains.
Improved Card Spending Fails to Bolster New Zealand Dollar (NZD)
In another negative sign for the New Zealand economy, the ANZ truckometer index contracted -2.6% on the month in September.
There was better domestic news later in the day as NZ retail card spending jumped 1.1% on the month rather than 0.6%, but the New Zealand Dollar remained trending lower against the Pound and US Dollar.