• UK Public Borrowing declines – Osborne still likely to miss 2012 budget target.
• EU summit conclusion fails to impress – lack of bank recapitalisation progress hurts risk sentiment.
• Stagnant Canadian CPI – further reduces BoC rate hike bets.
• “More QE needed” – says BoE policymaker David Miles.
Let’s start with the good news: the UK government borrowed less money this September than it has done in the ninth month of the year since 2008. Public Sector Net Borrowing fell to £12.8 billion in September, beating analysts’ expectations of a print of £13.9 billion. The figure, which is used by the government to measure the budget deficit, gave the Pound a boost in the currency markets as it suggested that the UK is in slightly better shape, fiscally, than first thought. Upward revisions from earlier in 2012 showed that the year-to-date public borrowing figure is also £6.7 billion stronger than first anticipated.
But, when it comes to UK economic data, every cloud has a lead lining: and in this instance the force weighing down on Sterling sentiment derides from the fact that Chancellor George Osborne is still likely to miss his budget deficit by around £5 billion this year. For this reason Sterling’s gains were very much of the muted variety on Friday.
The Pound grew by as much as 0.3 cents against the Euro on Friday as markets were underwhelmed by the conclusion to the 2-day EU summit in Brussels. Although EU leaders, all 27 of them, agreed to create the legal framework for a Eurozone Banking Supervisor by the end of 2012, the issue of bank recapitalisation was not suitably concluded – and this ‘renewed uncertainty’ worried investors.
The uncertain outcome from the summit can be conveyed perfectly through the contrasting views of different EU leaders: Greek Prime Minister Antonis Samaras was triumphant as the Hellenic nation’s place within the 17-nation bloc was reasserted once more; Spanish Prime Minister Mariano Rajoy said that he did not feel under pressure from the rest of Europe to request a bailout package; German Chancellor Angela Merkel stressed that the Eurozone needs closer economic coordination, and that the creation of a Banking Supervisor entails a number of complex legal issues which cannot be rushed; whereas French President Francois Hollande agreed that progress is being made, but insisted that future developments need to be streamlined; and UK Prime Minister David Cameron appeared preoccupied with domestic issues, once again threatening to utilise his right to veto if the next EU budget ‘isn’t a deal that’s good for Britain’.
Sterling declined by around 0.6 cents, to settle just above 1.6000, against the US Dollar on Friday as Bank of England policymaker David Miles commented that he believes more expansive monetary policy is needed to bolster, what he sees as, the weak UK economy. Alongside worries of additions to the British money supply, Sterling sentiment was also damaged by, what markets interpreted as, a lack of progress from the EU summit.
US Existing Home Sales printed bang on the money at 4,750,000, exactly as analysts had predicted, to little effect on the Pound to US Dollar exchange rate.
The Canadian Consumer Price Index remained stagnant at a disappointing 1.2% in September amid speculation that it might have increased to 1.3%. The soft inflation figure compounds the Bank of Canada’s recent remarks, which have been of a distinctly dovish disposition. The BoC are set to release their interest rate decision on Tuesday, and especially in light of Friday’s stuttering CPI figure, an interest rate hike is unlikely.
The Pound to Canadian Dollar exchange rate grew, first by 0.25 cents in response to the positive UK public borrowing figures, and then by 0.6 cents as the Canadian inflation print was released, to mark a daily gain of 0.85 cents for Sterling.
GBP/AUD opened around 0.5 cents higher this morning as risk sentiment took a hit from Friday afternoon’s largely uninspiring meeting of EU leaders in Brussels. With markets wary that Germany’s hardline stance on structural reforms may delay the implementation of a Banking Supervisor in the Eurozone – capable of recapitalising struggling banks in the currency union – the sentiment-driven ‘Aussie’ Dollar has declined against Sterling.
New Zealand Dollar
The Pound managed to post a daily gain of around 0.5 cents on Friday against the New Zealand Dollar, as disappointed traders favoured the safe haven UK currency over the commodity-correlated ‘Kiwi Dollar’ in response to a lack of decisive developments in the Eurozone. However GBP/NZD gave those gains right back at the start of the Asian session this morning leaving the Sterling / New Zealand Dollar rate at around 1.9580.
Data Released Today
10:00 Euro-Zone Government Debt-GDP Ratio (JUL 3)
- The Pound grew by around 0.5 cents against the Euro
- The Euro grew by around half a cent against the Pound
- Pound to Euro, US Dollar exchange rate: The Pound grew by around half a cent 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: The Pound lost out on 0.4 cents against the US Dollar