The Pound surged through 1.61 against the U.S Dollar this morning

Sterling appreciated at a slow pace throughout the day yesterday against the Canadian Dollar as investor's appetite for risk declined upon the digestion of some soft data from the Eurozone.


• Eurozone PMI’s falter – region experiencing 3-year low in output.
• Australian inflation grows – reduces rate drop expectations.
• Chinese PMI on the up – manufacturing output close to growth.
• NZD avoid interest rate cut – hold rate at 2.50%


Sterling sentiment grew slightly yesterday as, an otherwise gloomy, speech from Bank of England Governor Mervyn King seemed to reduce the likelihood of further quantitative easing measures in November. Although King spoke of the tough task ahead facing UK banks and investors, he dampened QE hopes by commenting that high food and energy prices “are likely to leave inflation a little above target well into next year.” The Governor also mentioned that asset purchases have proved slightly less effective in reducing gilt yields than originally projected.

However the risk of further installments to the BoE’s monetary easing cycle still remains, and investors have remained suitably cautious. Today’s release of the Gross Domestic Product figures (which measure the value of everything produced in the country) has proved extremely interesting with the UK officially emerging out of recession.
The UK economy grew by 1.0% between July and September compared with the previous three months. This is more than economists had predicted and is proving positive for the Pound. The economy got a boost during this period from ticket sales for the Olympic and Paralympic Games although The Office for National Statistics has said that Olympic ticket sales only accounted for an additional 0.2 percentage points of the growth.


The Pound continued to appreciate against the Euro yesterday, growing by just under a cent in response to disappointing Eurozone data which indicated that economic activity in both Germany – the continents largest economy – and the currency bloc as a whole, has fallen to the lowest level since mid-2009.

The German PMI figure for Manufacturing fell dramatically from 47.4 in September to 45.7 in October, similarly the German Services output remained in contraction at 49.3. The figure for manufacturing output in the 17-nation bloc declined to an abysmal 45.3, and the Eurozone-wide Services print came in at 46.2.

The weak data, highlighted by a 3-year low Eurozone Composite PMI result of 45.8, suggests that the currency bloc may face deeper contractions in the fourth quarter. Although the 17-nation bloc is yet to receive its GDP results from Q3 – which are expected to show a mild decline – yesterday’s figures reflect very pessimistically on the Eurozone’s prospects as 2012 comes to an end.

To make matters worse for the currency bloc, German Business Confidence has also fallen to its lowest level in 2.5-years, according to the Munich-based IFO institute.

US Dollar

Sterling rebounded by around 0.8 cents against the US Dollar during the day yesterday as profit-taking stances took the Pound higher following GBP/USD’s 6-week low on Tuesday.

Data releases were decidedly neutral yesterday: the US Preliminary Manufacturing PMI increased from 51.1 to 51.3, missing expectations of a rise to 51.5, however US Home Sales improved by slightly more-than-expected to 389,000.

Canadian Dollar

Sterling appreciated at a slow pace throughout the day yesterday against the Canadian Dollar as investor’s appetite for risk declined upon the digestion of some soft data from the Eurozone. GBP/CAD also declined as BoC Governor Mark Carney said that : “The case for adjustment in interest rates has become less imminent.”

Australian Dollar

The Australian Dollar grew sharply by around 1 cent yesterday morning against the Pound as a surprisingly high Consumer Price Index print reduced the chance of an interest rate cut from the Reserve Bank of Australia. The annualised headline inflation figure grew to 2.0% in the third quarter, compared to analysts’ expectations of a 1.6% rise. The ‘Aussie’ was also helped by news of an increase in China’s Manufacturing PMI result from 47.9 to 49.1, which raised economic prospects in the region.

However GBP/AUD claimed back around half of its losses, 0.5 cents, as risk sentiment tumbled upon the release of the disappointing data in the Eurozone.

New Zealand Dollar

As a key driver behind economic growth in the Asian-Pacific region, output from China is closely monitored by New Zealand Dollar traders. Early yesterday morning the New Zealand Dollar was propelled upwards, by around 0.5 cents against Sterling, as traders reacted positively to the latest Chinese release. Although manufacturing output in China remained in contraction during October at 49.1, the figure marked a massive increase on September’s soft 47.9 print and suggested that the Chinese Dragon may be heating-up again after 2 years of cooling growth.

However, like its Antipodean counterpart, the ‘Kiwi’ Dollar was subject to heavy selling pressures during the day as European data failed to ignite the flames of risk appetite.

Data Released Today

EUR 08:30 German Purchasing Manager Index Manufacturing (OCT A) 48

EUR 08:30 German Purchasing Manager Index Services (OCT A) 50

EUR 09:00 Euro-Zone Purchasing Manager Index Composite (OCT A) 46.5

EUR 09:00 Euro-Zone Purchasing Manager Index Manufacturing (OCT A) 46.5

EUR 09:00 Euro-Zone Purchasing Manager Index Services (OCT A) 46.4

USD 19:15 Federal Open Market Committee Rate Decision (OCT 24) 0.25%

NZD 21:00 Reserve Bank of New Zealand Rate Decision (OCT 25) 2.5%

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