Weekly round up on what is happening on the currency markets.
- Patrick Maflin
Pound Sterling (GBP)
Sterling continued edging higher against most rivals on Friday morning as data indicated that the British economy had been performing sturdily in the months leading up to the UK Referendum. After advancing for much of last week, Sterling slipped on Monday due to smaller volumes of trade throughout the UK bank holiday.
According to a report from the Office for National Statistics (ONS), the latest estimate for Britain’s Q2 Gross Domestic Product (GDP) indicated that the UK economy would likely expand by around 0.6% in that period. This is largely due to household spending and business investment. In the run up to the Referendum at least, the ONS claimed that there was no solid evidence of activity being affected by Brexit jitters – in fact investment improved by 0.5% despite a drop of -0.8% being predicted.
The Pound was also likely bolstered by the latest British consumer confidence report, which has improved by 3.2 to 109.8. This was the largest monthly jump since February 2013, indicating that British consumers were rebounding from potential Brexit fears.
US Dollar (USD)
The Pound to US Dollar exchange rate briefly hit a three-week-high during Friday’s Jackson Hole symposium, at which Federal Reserve policymakers such as Chairwoman Janet Yellen spoke on monetary policy. Following the conference, GBP/USD plummeted as investors reacted to optimism from Yellen. She indicated that strong labour figures from recent months and a higher inflation outlook had meant that rate hike chances were higher than in July. However, investor excitement was slightly dampened by the vagueness in Yellen’s tone.
The US Dollar was also boosted by comments from Fed Vice Chairman Stanley Fischer, who hinted that the Fed was indeed considering hiking rates before the end of the year. As a result of the comments, Fed rate hike bets increased from 18% in September to 30%, and 2016 rate hike bets from 44% to 60%.
GBP/USD has fallen a cent in value since Friday and has continued to fluctuate with a downward bias thus far this week. US investors are increasingly looking ahead to December, when analysts believe a rate hike is possible then.
The Pound to Euro exchange rate has trended sturdily since last week as GBP’s recovery rally was extended by solid Q2 growth news and August consumer confidence. The Euro was also weakened slightly last Friday by news that the Federal Reserve claimed they would still hike up US interest rates at least once in 2016.
Besides that, the Euro has experienced mixed movement due to last week’s mixed German reports, including poor business confidence scores but better-than-expected consumer confidence.
More German data will follow on Tuesday afternoon - August’s preliminary Consumer Price Index (CPI) data. With some analysts worried that Germany’s economy will be hit harder by the Brexit vote than other Eurozone economies, a strong German inflation report could boost the Euro this week.
Australian Dollar (AUD)
The Pound to Australian Dollar exchange rate advanced by over a cent on Friday, reaching a three-week-high as a stronger US Dollar undermined demand for the risk-correlated ‘Aussie’ Dollar.
On the other hand, GBP/AUD was able to reclaim much of its losses on bank holiday Monday and continued to hold its ground on Tuesday as the US Dollar’s recovery rally slowed. Risk sentiment remained low on Tuesday morning, meaning the ‘Aussie’ was down against most rivals. Strong July building approval figures from Australia also did little to help the ‘Aussie’ surge.
New Zealand Dollar (NZD)
The New Zealand Dollar has followed a similar trajectory to the Australian Dollar vs the Pound since late last week, as is often the case when the risky antipodean currencies become limp due to a strong risk-off movement.
GBP/NZD briefly hit a two-week-high on Friday, but plunged on Monday as Sterling’s rally paused on bank holiday Monday.
Canadian Dollar (CAD)
The Pound to Canadian Dollar exchange rate advanced slightly on Friday and Monday but ultimately found it difficult to hold its recent highs despite the lowered appeal of the Canadian Dollar.
Higher rate hike bets in the US caused the ‘Loonie’ to weaken, and the appeal of the currency was dampened further as higher Fed hike bets also caused oil prices to slip. As crude oil is priced in US Dollars, the increasing value of the Dollar has meant that oil will be more expensive for foreign buyers, weighing on oil sales and prices.
The Canadian Dollar strengthened on Tuesday morning as the US Dollar returned from its highs, also causing oil prices to improve slightly.
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