• BoE hold interest rate at 0.50% – Asset Purchasing Target remains at £375bn.
• ECB refrain from rate cut – benchmark interest rate remains at 0.75%.
• US Factory Orders decline – -5.2% represent worse fall for over 3.5 yrs.
• “Spain must decide if it has done enough for a bailout” – says ECB President Mario Draghi.
Yesterday the Bank of England fell into step with market predictions and announced that they would not be altering their current record-low interest rate of 0.50%, nor would they be adding further funds to their asset purchasing target of £375 billion, during the month of October.
Traders were largely expectant of the (non-)decision and therefore the Pound was not subject to any large swings in sentiment following the announcement. However with the current quantitative easing programme expiring at the end of the month, many within the industry expect the BoE to help support the UK economy with an additional £50 billion at November’s meeting.
The European Central Bank refrained from initiating an interest rate cut at their October announcement, leaving the benchmark interest rate at 0.75% for the Eurozone. During the accompanying press conference European Central Bank President Mario Draghi spoke proudly of the “effective backstop” he has created, in the form of the Outright Monetary Transaction programme, and mentioned that inflation remains “broadly balanced”.
The Pound fell to a 2-week low of 1.2423 against the Euro yesterday as markets digested the ECB’s decision to leave interest rates unchanged.
Draghi’s press conference, although about as groundbreaking as the latest edition to the Twilight Saga, gave the single currency a 10 pip boost against the Pound and featured these key points:
The ECB will continue to act independently; The Euro is irreversible; European growth forecasts remain fragile; Inflation should hold above 2.0% in 2012;The ECB did not even discuss an interest rate cut at this juncture; Spain must ask for a bailout to find out if current reforms are sufficient for ECB bond intervention; and OMT can only help countries with full market access (ie. not Greece, Portugal, or Ireland).
Sterling broke through resistance levels at 1.6100 to post a daily gain of 0.9 cents against the US Dollar yesterday on the back of the Bank of England’s decision to hold the current interest rate and asset purchasing target.
The Pound’s positive performance was accentuated throughout the day as Mario Draghi’s speech lifted the single currency against the ‘Greenback,’ and Sterling tracked these gains.
US Initial Jobless Claims printed at 367,000 for September, slightly better-than-expected, but still 4,000 higher than August’s result. US Factory Orders also beat analysts’ expectations, but Augusts’ plummet to -5.2% – the worst since January 2009 – did nothing to help the US Dollar on a day that was very much characterised by losses for the world’s premier reserve currency.
The Canadian Dollar fell by around half a cent against the Pound yesterday in a knee-jerk response to the ECB’s inclination to hold the benchmark interest rate at 0.75%; it seems that investors were anticipating an interest rate cut that could proved positive towards risk sentiment.
However Sterling’s gains were swiftly reversed as Mario Draghi gave his post rate-decision press conference in which he stated that conditionality (for ECB support in the sovereign bond market) would not necessarily mean “harsh” new measures.
GBP/CAD ended the day around 0.1 cents worse off as the Canadian Ivey Purchasing Managers Index printed at 60.4 – a score that British and Eurozone officials can only dream of at during the current depressed economic climate.
Australian Retail Sales rebounded by less-than-expected in August, rising from the ashes of July’s -0.8% figure, to post a disappointing score of 0.2%. The Australian Dollar sank, losing out on around 0.7 cents, against the Pound yesterday as investors digested the ECB’s decision to avoid a risk-boosting interest rate cut.
The Pound’s fresh 4-month high of 1.5819 owed itself, in some respects, to the minutes from the US Federal Open Market Committee’s September meeting, which detailed how some policy members were concerned regarding the effectiveness of further monetary stimulus measures. The anxiety expressed by the Fed towards additional Central Bank intervention proved damaging to risk sentiment, and the ‘Aussie’ Dollar was negatively impacted.
New Zealand Dollar
Sterling reached a 2-week high of 1.9753 against the New Zealand Dollar yesterday. The Pound’s 0.75 cent gain against the ‘Kiwi’ Dollar was largely fuelled by the ECB’s decision to maintain its current interest rate of 0.75%. Investors were left hungry for risk sentiment as the European Central Bank declined to cut interest rates, a move which was predicted to lift riskier currencies such as the New Zealand Dollar.
Data Released Today
13:30 CAD Unemployment Rate (SEP)
13:30 USD Change in Nonfarm Payrolls (SEP)
13:30 USD Unemployment Rate (SEP)
- Sentiment surrounding Sterling has remained fairly positive this week
- Daily Foreign Exchange Rate Forecast – The Pound is being undermined at present to a large extent by the deterioration in risk sentiment
- Pound to Euro, US Dollar exchange rate: The Pound was able to benefit from the Bank of England’s decision
- Pound to Euro, US Dollar exchange rate: Up and up and up. The Pound to US Dollar exchange rate hit another fresh 4-month high
- Pound to Euro, US Dollar exchange rate: The Pound fell by over 0.6 cents against the Euro