On Friday Sterling fell against the Euro and rose against the US Dollar as markets reacted positively to the European Central Bank’s Outright Monetary Transaction programme.
• ECB action boosts Euro – GBP/EUR falls to 2-month low.
• UK Industrial and Manufacturing Production rebound – extra Bank Holiday impact wears off.
• US Non-farm Payrolls stutter – QE3 bets increase.
• Risk sentiment rises – on ECB intervention.
On Friday Sterling fell against the Euro and rose against the US Dollar as markets reacted positively to the European Central Bank’s Outright Monetary Transaction programme which aims to level out the playing field, in terms of sovereign debt yields in the Eurozone.
Results released with regards to Industrial and Manufacturing Production during July detailed a massive rebound from June’s poor figures as the negative effects of the Queen’s Jubilee, and the accompanying extra Bank Holiday, wore off. Industrial Production soared from -2.4% to +2.9% and Manufacturing Production jumped from -2.9% to +3.2%, keeping in line with the recent trend of economic optimism in the UK. Although the struggle continues, many feel that Britain is now on the right path to recovery.
The Pound declined by over a cent against the Euro on Friday, falling to a 2-month low of 1.2489, as the yield on Spanish 10-year bonds dropped below 6.0% for the first time since May. Although the ECB’s scheme was viewed with caution upon its announcement on Thursday, markets acted with more purpose on Friday and it seems that sentiment in the 17-nation bloc has taken a turn for the better in response to Mario Draghi’s controversial bond-buying programme.
The Sterling / Euro rate stands at a dynamic juncture; whilst the factors that dictate its future direction are multitudinous to say the least, the outcome of Wednesday’s Constitutional Court ruling in Germany will hold profound sway. If the European Stability Mechanism is rejected by German law then extreme reversals can be expected in terms of the single currency’s recent appreciation. However if the ESM gets the necessary ratification then the Euro may be able to hold onto, and build upon, its current strength.
Sterling rallied to a 4-month high of 1.6034 against the US Dollar yesterday as weaker-than-expected US Non-farm Payrolls sent Fed stimulus hopes into overdrive. With the Bank of England relaxing in the sidelines, sipping on a macchiato, and proudly surveying its latest round of asset purchases and new Funding for Lending Scheme, the Pound has been let off the leash and has suitably improved against the US Dollar in recent weeks. The ‘Buck,’ however, has been frustrated, and constrained, by its Central Bank and all signs now point to a return to the Fed’s easing cycle at Ben Bernanke’s FOMC press conference on Thursday.
Quantitative easing bets were hugely improved last Friday as the US Non-farm Payrolls figure printed at a disappointing 96,000 compared-to-an-anticipated 130,000. If the Federal Reserve do in fact decide embark on a third round of asset purchases then the US Dollar is expected depreciate – due to the inflationary implications of printing money – and risk sentiment should improve – due to stabilisation in financial markets.
In an eventful, but ultimately fruitless, day for the currency pair the Pound fluctuated by around 0.7 cents against the Canadian Dollar on Friday before consolidating at 1.5664 – pretty much the level where it began at the beginning of the day. At first Sterling grew on the positive Industrial and Manufacturing Production figures before falling back down as Spanish debt yields decreased, which improved investors’ appetite for risk and subsequently benefitted the commodity-correlated Canadian Dollar.
The Australian Dollar continued to grow on ECB intervention optimism during Friday’s session as global risk sentiment markedly improved. The Pound to Australian Dollar exchange rate decreased by around 0.9 cents, falling to 1.5410, as Mario Draghi’s announcement had a positive effect on the European sovereign debt market. The ‘Aussie’ also drew inspiration from the soft US Non-farm Payroll data which increased the likelihood of global growth inducing stimulus from the world’s largest economy.
New Zealand Dollar
The New Zealand Dollar also posted an impressive performance on Friday, appreciating by around 2 cents against the Pound, as it benefitted from risk appetite-boosting developments in Europe and North America. The risk-sensitive ‘Kiwi’ dollar took advantage of ECB bond-buying prospects and the increased probability of QE3 in the US.
Data Released Today
08:30 EUR Euro-Zone Sentix Investor Confidence (SEP)
19:00 USD Consumer Credit (JUL)
23:01 GBP RICS House Price Balance (AUG)
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