The Pound is being dragged down against the Euro as investors place their confidence in Mario Draghi’s Outright Monetary Transactions programme.
• Monti won’t ask for ECB intervention – due to frayed political support.
• UK House Prices mildly improve – possibly in light of the new Funding for Lending scheme.
• US Consumer Credit drops – QE3 bets increase.
• Chinese data fails to impress – Antipodeans negatively impacted.
As the week kicks off Sterling is still trading with Central Bank announcements in mind; the Pound is being dragged down against the Euro as investors place their confidence in Mario Draghi’s Outright Monetary Transactions programme, and the UK currency remains propped up against the US Dollar as markets await a return to the Fed’s easing cycle.
The Pound was left slightly better-off yesterday after a report from the Royal Institute of Chartered Surveyors (RICS) showed that the recent trend of falling house prices slowed by more-than-expected in August. The official RICS House Price Balance figure declined by -19% compared to an expected -23%, which could reflect a positive impact from the Bank of England’s new Funding for Lending scheme.
Despite learning that his country shrank by -0.8%, rather than the initial estimate of -0.7%, in Q2 Italian Prime Minister Mario Monti commented that the European Central Bank’s much-lauded bond-buying programme is of no interest to him at all: “Italy would not accept conditions beyond those already agreed and which we are already respecting.”
Monti’s comments represent another twist in the unravelling Eurozone debt crisis plot; for although the ECB’s bond intervention scheme has the potential to relieve some stress from the sovereign bond market, it relies on crisis-hit countries agreeing to further austerity measures. With political backing stretched to the limit already in Italy and Spain, it will be difficult for either country to sign up for additional cutbacks, in the current climate, as it could lead to severe unpopularity and political backlash.
In response to Monti’s statement the yield on Italian 2-year notes increased by 17.2 basis points and the yield on the benchmark 10-year government debt jumped up by 9.7 basis points. Subsequently the Pound to Euro exchange rate rose from its 2-month low of 1.2484 and appreciated by around 0.9 cents yesterday afternoon.
The Pound continued to trade close to 4-month highs against the US Dollar yesterday as expectant markets began to price-in the possibility of further quantitative easing from the world’s most prominent economic power. The prospect of QE3 remained very positive following the release of the US Consumer Credit data for July. The report detailed the first decline since August 2011 as Consumer Credit decreased by -$3.276 billion in July, following a $11.823 billion rise in June.
The Sterling / Canadian Dollar rate slipped to a 2-week low of 1.5605 yesterday as global risk appetite grew on ECB bond-buying hopes and Federal Reserve stimulus bets. The commodity-correlated Canadian Dollar also benefitted from the Bank of Canada’s relatively hawkish bias, indeed Governor Mark Carney commented last week that an interest rate hike “may become appropriate” in the future.
With Chinese data unrelenting in its recent slowdown, the Australian Dollar has found it hard to jump on the risk-on bandwagon. The Australian economy, which shares a strong trade partnership with China, was left unsupported yesterday as Chinese Industrial Production increased at the slowest rate in 3 years and Chinese Imports decreased by -2.6%. Subsequently the Pound to Australian Dollar exchange rate grew by around 0.6 cents.
New Zealand Dollar
New Zealand Manufacturing activity dropped-off by -1.1% during the second quarter, but this had little affect on the ‘Kiwi’ Dollar’s value in the currency markets. However the Pound did manage to mount a 1-cent rally against the Antipodean currency in response to cooling in the Chinese economy, which dampened economic prospects for the the Asia-Pacific region. The Reserve Bank of New Zealand are expected to leave interest rates unchanged at 2.5% later on in the week, but until that decision is confirmed the New Zealand Dollar remains susceptible to investor jitters.
Data Released Today
08:30 GBP Visible Trade Balance (Pounds) (JUL)
12:15 CAD Housing Starts (AUG)
12:30 USD Trade Balance (JUL)
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- Pound to Euro, US Dollar exchange rate: The Pound to US Dollar exchange rate briefly rose above 1.5900 to mark a fresh 3-month high of 1.5912
- Pound to Euro, US Dollar exchange rate: The Pound to Euro exchange rate reached a fresh three-and a-half year high
- Pound to Euro, US Dollar exchange rate: Fears over Euro Zone resurface
- Pound to Euro, US Dollar exchange rate: The Pound to Euro exchange rate improved by around 0.6 cents