Exchange Rates Today: GBP Bearish on Scottish Independence Anxieties, USD Bullish on Fed Rate Hike Expectations
Pound Sterling (GBP)
Despite a plethora of UK events on the economic calendar on Tuesday none of them gave investors a huge incentive to invest in the Pound. The hangover from the Scottish bid for independence is far from abating and continues to overshadow any positive UK data.
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One such positive domestic result was a report that showed industrial production to have accelerated at its fastest pace since February. The 0.5% growth in July eclipsed the market consensus of 0.2%. Manufacturing production also printed positively, having equalled the median forecast of 0.3%.
However, not all of Tuesday’s data yielded positive results. The Office for National Statistics (ONS) showed that Britain’s trade deficit widened unexpectedly from -9.4 billion to -10.2 billion in July as imports exceeded exports for the fifth consecutive month.
On Tuesday afternoon Bank of England Governor Mark Carney gave a speech in Liverpool in which he suggested that wage growth would begin to increase by the middle of next year. He also hinted at a spring-time interest rate hike if the BoE continues on its current path. In comparison to previous speeches, the Governor’s words had little effect over Sterling movement.
As the speech progressed, however, he outlined his stance on the Scottish referendum. His announcement that he is not willing to share the Pound should Scotland gain independence had the effect of curtailing Sterling’s downtrend.
A report from the National Institute of Economic and Social Research (NIESR) indicated that the pace of the British economic growth has cooled from 0.8% to 0.6% in the three months to August. The data shows that Gross Domestic Product growth could emulate the trajectory and slow from 0.8% to 0.6% in the third quarter.
The recent stimulus measures employed by the European Central Bank has sent the EUR/USD exchange rate to a fresh yearly low, however Sterling still struggled against the single currency on Tuesday. There was an absence of economic data pertaining to the currency bloc and little optimism to be gained from British developments, which left GBP/EUR fluctuating close to the psychologically significant mark of 1.25.
In terms of European domestic data there will be nothing of significance until Thursday. The German consumer prices report is expected to increase by 0.8% during August but, barring any surprising result, the report is unlikely to have a protracted impact on the Pound Sterling to Euro exchange rate.
US Dollar (USD)
Anxieties over the threat of Scotland seceding from the United Kingdom continued to spook investors on Tuesday and the Pound to US Dollar exchange rate succumbed to a 10-month low as a result.
On Wednesday afternoon the Bank of England’s high-profile policymakers will explain its latest inflationary projections to parliament. The testimony is unlikely to have any surprising revelations but, given Sterling’s recent 10-cent declination, ‘Cable’ (GBP/USD) will be potentially sensitive to any dovish remarks.
The US Dollar has also rallied on the prospect of a near-future rate hike as labour market data pressures the Federal Reserve into action.
Canadian Dollar (CAD)
A below-par Canadian housing market indicator enabled Sterling to register a 0.4 cent daily gain against the ‘Loonie’ (CAD). Canada Mortgage and Housing Corp issued a report that showed Augusts’ housing starts to have cooled from 199,800 to 192,300.
The ‘Loonie’ also suffered from the falling price of commodities such as crude oil after recent US and Chinese imports data indicated an excess of materials and a lack of demand.
Australian Dollar (AUD)
During Tuesday’s European session the Pound to Australian Dollar exchange rate remained unmoved despite soft Australian data. However, demand for the ‘Aussie’ (AUD) dampened when traders started work in New York. The National Australia Bank’s (NAB) Business Confidence Index fell from 10 to 8 in August, whilst July’s home loans only showed a 0.3% growth.
The Pound to Australian Dollar exchange rate gained over a cent during the North American session. The ‘Aussie’ has also suffered from the recent fall in commodity prices with particular reference to iron ore.
New Zealand Dollar (NZD)
Following a fairly heavy day of Sterling selling on Monday, the Pound traded with a reasonably neutral bias against the New Zealand Dollar on Tuesday. The ‘Kiwi’ has suffered similar difficulties to its South Pacific neighbour as the fall in commodity prices has put a real dent in economic growth.
Later on Wednesday evening the Reserve Bank of New Zealand is set to announce its benchmark interest rate for September. Although it is widely expected that the interest rate will remain at 3.50%; any accompanying commentary is likely to spark volatility for the New Zealand Dollar.
South African Rand (ZAR)
A mixed set of South African data on Tuesday saw the Pound make small gains against the Rand. Business confidence increased to 46.0 despite having been forecast at 36.29, but the South African current account declined to -222.0 billion from -161 billion. The absence of South African economic data until Thursday will see the Rand’s movement dictated by foreign currency changes.