Sentiment surrounding Sterling has remained fairly positive this week despite a distinct lack of fundamental data. One reason for this positivity towards the Pound is the impending EU payment of farm subsidies.
• EU farm subsidies due on Friday – could support the Pound.
• European stocks decline – Spanish and Greek conflicts unresolved
• GBP/CAD reaches 1.5934 – 2.5-month high.
• German inflation falls – interest rate reduction remains unlikely.
Sentiment surrounding Sterling has remained fairly positive this week despite a distinct lack of fundamental data. One reason for this positivity towards the Pound is the impending EU payment of farm subsidies. On Friday the European Union is set to make a payment of around €3.3 billion to help support farmers in the agricultural sector. The annual payment is expected to give the UK currency a boost and this has helped carry the Pound through the week.
Spain’s lack of progress towards a bailout package, which ensures that the European Central Bank cannot embark on its ‘crisis-catching’ bond-buying programme, has continued to leave investors unsettled. Yesterday was the worst day in 2 months for European markets with the Spanish Ibex, down 320 points at -3.9%, and the Italian FTSE MIB, down 524 points at -3.29%, bearing the brunt of the sell-off.
Violent riots have broken out in both Athens and Madrid, and market sentiment towards the single currency was aptly described by John Taylor, CEO at FX Concepts, the largest currency hedge fund company in the world, as worsening rather than improving:
“It is hard to look at the European situation and see a cloudy sky become clear. Much more likely that cloudy sky will start to rain on you.”
The Pound reached a daily high of 1.2593 yesterday upon the release of Germany’s Consumer Price Index result for September. The headline inflation figure dropped slightly, as expected, from 2.2% to 2.1%. The Eurozone target level for inflation is just below 2.0% and subsequently the falling German figure was not interpreted by markets as enough to warrant an interest rate cut from the ECB. GBP/EUR reversed its gains during the afternoon to mark a daily gain of less than 10 pips.
Sterling declined by a modest 0.2 cents against the US Dollar yesterday as investors lost confidence in riskier assets and currencies due to heightened uncertainty in the Eurozone. Volatile austerity protests, and a chilling economic forecast from credit rating agency Fitch that Greece’s debt-to-GDP ratio could increase to 180.2% in 2014, were the main cause for concern. Spanish 10-year bond yields reflected the mood of pessimism as they slowly edged up to 6.03%.
Sterling appreciated to a 2.5-month high of 1.5934 against the Canadian Dollar yesterday as commodity prices continued to fall and investor confidence was snared by further Eurozone flare-ups. Although Tuesday’s strong Retail Sales figures reflected positively on the Canadian economy domestically, the commodity-correlated currency was unable to grapple with the melee of risk sentiment-destructive news emerging from the 17-nation bloc yesterday.
Despite the absence of a clear-cut catalyst the Australian Dollar managed to grow by around 0.3 cents against the Pound yesterday. The unexpected move is thought to be a result of a technical reversal as it contradicts the general direction that markets were moving in yesterday. As a high-risk, high-yielding currency, the ‘Aussie’ would be expected to fall against the ‘safe-haven’ Sterling in times of economic uncertainty such as these.
New Zealand Dollar
It seems that the New Zealand Dollar has also benefitted from the unconventional approach from offshore investors. GBP/NZD declined by 1.2 cents yesterday despite a concerted switch to risk-off trading prevailing around the rest of the world. It is possible that markets’ mistrust in the Eurozone has led some investors to place their funds into the ‘Kiwi’ currency, not just for its high-yielding nature, but also for its comparative lack of exposure to the European bloc.
Data Released Today
07:55 EUR German Unemployment Change (SEP)
08:30 GBP Gross Domestic Product (QoQ) (2Q F)
12:30 USD Durable Goods Orders (AUG)
12:30 USD Gross Domestic Product (Annualized) (2Q T)
- Pound to Euro, US Dollar exchange rate: The UK economy was treated to another positive boost
- Pound to Euro, US Dollar exchange rate: The Pound remained relatively stable yesterday
- The Pound remained on the defensive yesterday and slumped to near six week lows against the US Dollar exchange rate
- The Pound advanced against the Euro and remained close to a 10-week high versus the U.S Dollar
- The Pound has enjoyed a positive start to this week’s session against the New Zealand Dollar