In the absence of any fresh UK data the Pound continued to grow on renewed optimism in the UK economy.
• More leaks than a Welsh pie – possible ECB action revealed.
• Eurozone Retail Sales drop – Composite PMI falls.
• BoC holds interest rates – minor CAD gains.
• ECB decision holds sway – markets await official confirmation.
In the absence of any fresh UK data the Pound continued to grow on renewed optimism in the UK economy. With the Bank of England likely to remain on the sidelines over the coming months, and improvements perceptible in the Service sector, sentiment surrounding Sterling has picked up recently. The Pound was also carried higher as the Euro improved by just under a cent against the US Dollar.
Like a poorly insulated roof, this week has been characterised by high-profile leaks. Following on from Tuesday’s early release of the UK Services PMI, yesterday saw some details from the European Central Bank’s bond-buying programme leaked 24 hours ahead of schedule. The news, although still not confirmed, that the ECB are planning to buy an unlimited supply of short-term – up to 3-year – debt sent the Euro higher against the Pound by 0.5 cents, although markets were wary of overreacting before the measures are officially announced.
There were two positive developments, potentially, revealed yesterday in terms of ‘sterility’ and ‘seniority’. ‘Sterility’ refers to the notion that an equal amount of money pumped into the sovereign bond market by the Central Bank will be taken out of the Eurozone economy from somewhere else – thus negating the threat of over inflation. The idea of ‘seniority’ relates to the order of repayment, and by waiving its ‘seniority’ the ECB will not be first in line for reimbursements. This aims to prevent private investors from worrying about losing out in the case of a sovereign default.
Economic data in the Eurozone was of a far less encouraging nature as the currency union’s Composite PMI figure fell further into contraction at 46.3, and retail sales decreased at an annual rate of -1.7%. The soft Purchasing Manager Index figures suggest that the Eurozone economy could be set to shrink at a worrying rate during the third quarter, which would drag the 17-nation bloc into a double-dip recession.
The Pound to US Dollar exchange rate hit a 3.5-month high of 1.5934 as the leaked ECB report gave rise to an improvement in global risk sentiment, which reduced demand for the safe haven US Dollar. However strong resistance caused GBP/USD to consolidate just above 1.5900. If the report’s accuracy is confirmed later on today, at the ECB’s official rate change announcement, then it could allow Sterling to improve further and push towards 1.6000.
Sterling lost out to the Canadian Dollar yesterday as Bank of Canada Governor Mark Carney announced that interest rates would be kept on hold at 1.0%, but that “economic growth is expected to pick up through 2013… to the extent that some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.” Although he hinted at an interest rate hike, in order to attain the inflation target of 2.0%, he also spoke of the usual problems: ‘global headwinds’, ‘the Eurozone debt crisis’, ‘slowdown in China’ which ensured that hike hopes remained fairly subdued.
Another poor day for the Australian Dollar yesterday saw weakening commodity prices and a slowdown in the country’s highly important mining sector send the ‘Aussie’ down by 0.7 cents against the Pound. A slight cooling in the Chinese Services sector PMI from 53.1 to 52.0 also worked against the Antipodean currency as it signalled that output is slowing in Australia’s largest trade partner.
New Zealand Dollar
Yesterday was a fairly quiet day for the Pound to New Zealand Dollar exchange rate as neither currency had much to go by in terms of domestic releases. Subsequently the GBP/NZD rate continued to grow from August 7th’s low, but at a moderate pace of 0.3 cents.
Data Released Today
10:00 EUR Euro-Zone Gross Domestic Product s.a. (QoQ) (2Q P)
12:00 GBP BOE Asset Purchase Target (SEP)
12:00 GBP Bank of England Rate Decision (SEP 6)
12:45 EUR European Central Bank Rate Decision (SEP 6)
13:30 USD Initial Jobless Claims (SEP 1)
- The Pound continued to decline against the Euro and also came under renewed selling pressure versus the U.S Dollar yesterday
- Pound to Euro, US Dollar exchange rate: Report suggests the UK economy will return to growth in the second quarter
- Pound to Euro, US Dollar exchange rate: UK economy posts worst trade deficit for 15 years
- Pound to Euro, US Dollar exchange rate: The UK economy was treated to another positive boost
- The Pound rallied for the second consecutive day against the Euro exchange rate while the Dollar came under renewed selling pressure