The Euro declined against Sterling by around 0.7 cents bringing the Pound to Euro exchange rate above 1.2500 for the first time in a week.
• UK Retail Sales fall less-than-anticipated – supports Sterling.
• Eurozone PMI disappoints – Euro declines.
• Risk-off trading prevails – as Eurozone worries return.
• New Zealand GDP grows 0.6% – reduces likelihood of rate cut.
Yesterday was a relatively comfortable day for Sterling as the UK currency benefitted from a slightly better-than-expected Retail Sales result. UK Retail Sales declined by -0.2%, compared to forecasts of -0.4%, during August – apparently due to a slump in online sales as Britons spent too much time watching the Olympics to make purchases on the internet.
Sterling also found solace as the CBI Industrial Trends Survey posted a vastly improved score of -8% compared to the previous month’s dismal -21%. Anna Leach of the CBI commented:
“Domestic and overseas demand have improved in this survey following last month’s falls, providing a foundation for somewhat better output growth expectations. Manufacturers believe that there will be a modest rise in output over the coming months, driven largely by the chemicals and food and drink sectors.”
The Pound increased steadily throughout the day yesterday against the Euro despite PMI data picking up slightly in Germany. The encouraging German figures – Services grew from 48.3 to 50.6 in September and Manufacturing increased from 44.7 to 47.3 – were betrayed by soft results for the Eurozone as a whole. The Composite Eurozone Purchasing Manager Index for September fell to 45.9 marking the deepest contraction for over 3 years.
The weak data seems to suggest that the European Central Bank’s bond-buying programme has not had the desired effect on business confidence in the 17-nation bloc and subsequently the Euro declined against Sterling by around 0.7 cents bringing the Pound to Euro exchange rate above 1.2500 for the first time in a week.
Some within the industry have interpreted the latest round of disappointing data to suggest that the ECB will introduce an interest rate cut at their next meeting. The proposed cut from 0.75% to 0.50% would mark a new record low for the currency bloc.
The Pound lost ground to the US Dollar yesterday as risk appetite dried up slightly in response to the weak Eurozone data and anxiety surrounding the situation in Spain. Counter-intuitively a strong Spanish debt auction, which saw 10-year bond yields fall to 5.67% compared to 6.65% at the previous auction, was taken by investors as negative for risk sentiment because it was seen to discourage Spanish Prime Minister Mariano Rajoy from requesting the appropriate financial assistance to kick-start the ECB’s bond intervention scheme.
The Sterling / US Dollar exchange rate fell as low as 1.6164 yesterday before consolidating at around 1.6210 to mark a daily decline of 0.2 cents.
Sterling reached a 2-month high of 1.5888 against the Canadian Dollar yesterday as markets switched to a risk-off trading formula in response to the softest Eurozone PMI results in over 3 years. Strong resistance at this level ensured that GBP/CAD did not pass 1.5890 despite data in the US – Canada’s largest trading partner – further dampening risk appetite. The US Initial Jobless Claims rose slightly more-than-expected, US Leading Indicators contracted, and the Philadelphia Fed index declined for the fifth month on the trot.
The Australian Dollar followed other risk-sensitive currencies lower yesterday as manufacturing data in China slumped to an eleventh consecutive contraction and Eurozone Composite PMI declined to a 39-month low. Risk-aversion allowed the Pound to appreciate by 0.6 cents against the Australian Dollar.
New Zealand Dollar
The Pound’s attempted 1.4 cent cent rally against the New Zealand Dollar yesterday ended in tears for the UK currency as it was unable to combat the positive sentiment surrounding the ‘Kiwi’ Dollar. GBP/NZD ended the day where it started, at around 1.9560, as the Antipodean currency benefitted from a stronger-than-expected second quarter GDP result, which reduced the likelihood of a Reserve Bank of New Zealand rate cut.
Data Released Today
09:30 GBP Public Finances (PSNCR) (Pounds) (AUG)
13:30 CAD Consumer Price Index (YoY) (AUG)
- Pound to Euro, US Dollar exchange rate: The Pound declined by around 0.8 cents against the Euro
- Pound to Euro, US Dollar exchange rate: The Pound declined by around 0.5 cents against the Euro
- Pound to Euro, US Dollar exchange rate: A strong Spanish debt auction sent the Pound to Euro exchange rate down by around 0.5 cents yesterday
- Pound to Euro, US Dollar exchange rate: The Pound fell by over 0.6 cents against the Euro
- Pound to Euro, US Dollar exchange rate: The Euro managed to appreciate by around 0.4 cents against the Pound