Pound Plunges in Spite of BoE Interest Rate Hike

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Headlines

  • Signs of Economic Strength Boost ‘Aussie’ – Improved services PMI and retail sales could extend uptrend
  • BoE Rate Hike Failed to Prevent Pound Slump – Markets discouraged by dovish policy outlook
  • Eurozone Manufacturing Sector Hit 80-Month High – EUR rates mixed thanks to ongoing political jitters
  • US Dollar Muted After Fed Meeting – Payrolls rebound likely to boost ‘Greenback’

Australian Dollar

Confidence in the ‘Aussie’ strengthened sharply in the wake of a better-than-expected widening of the trade surplus. This was accompanied by a surprise rebound in September’s building approvals figures, together suggesting that the Australian economy is in a stronger state than previously thought. With market risk appetite also picking up in the wake of the Federal Reserve’s latest policy meeting there was little to prevent AUD exchange rates making solid gains over the course of the day.

A similarly strong performance for this morning’s services PMI and retail sales figures could see the Australian Dollar hold onto a bullish run heading into the weekend.

Sterling

It came as no real surprise to markets that the Bank of England (BoE) opted to raise interest rates at its November policy meeting. However, the mood towards the Pound soured significantly in the wake of the announcement thanks to the more dovish nature of the accompanying meeting minutes and Inflation Report. All signs point towards policymakers leaving interest rates on hold in the coming months, rather than pursuing a monetary tightening cycle like some investors had hoped.

Even if the UK services PMI surprises to the upside today this is unlikely to offer GBP exchange rates any particular support.

Euro

As the Eurozone manufacturing PMI rose to an 80-month high in October this helped to shore up demand for the single currency. Stronger showings from Italy and Spain offered particular encouragement to investors, signalling that the currency union got off to a strong start in the fourth quarter. Even so, the Euro struggled to make headway against its higher-yielding rivals thanks to the general mood of risk appetite.

With tensions heating up over the fate of the deposed separatist Catalan government the single currency may falter further in the near term.

US Dollar

While markets had expected the Federal Reserve to leave interest rates on hold at its November meeting this failed to prevent the US Dollar weakening on Thursday. Even though the odds of a December rate hike are still high investors were somewhat discouraged by the Fed’s continued issues with inflation. Although the latest jobless claims showed improvement this was unable to boost the ‘Greenback’, with focus still on the Trump administration’s announcement of the next Fed Chair.

A solid rebound in non-farm payrolls after September’s contraction may still boost USD exchange rates tonight, though.

Canadian Dollar

Signs that the OPEC-led production limiting agreement is continuing to eat into the global oversupply glut offered some support to the Canadian Dollar on Thursday. Even so, with the Bank of Canada (BOC) looking set to maintain its neutral policy outlook for the foreseeable future ‘Loonie’ gains were somewhat limited. Building anticipation for Friday’s labour market data also put pressure on CAD exchange rates.

However, if the domestic labour market continued to tighten in October then the mood towards the Canadian Dollar could improve.

New Zealand Dollar

Greater market demand for higher-yielding assets shored up the ‘Kiwi’ yesterday, with the antipodean currency benefitting from a weaker US Dollar. Investor negativity towards the new centre-left government eased somewhat, meanwhile, given the recent signs of underlying strength in the New Zealand economy. The New Zealand Dollar’s recent weakness also helped to encourage buyers.

With domestic data still thin on the ground today NZD exchange rates will continue to follow the lead of general market developments.

Data Released

November 3rd 08:30 AUD Services PMI (OCT)
November 3rd 10:30 AUD Retail Sales (MoM) (SEP) 0.4%
November 3rd 19:30 GBP Services PMI (OCT) 53.3
November 3rd 22:30 CAD Unemployment Rate (OCT) 6.2%
November 3rd 22:30 USD Change in Non-Farm Payrolls (OCT) 312,000

Post by TorFX

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