Band of England Governor, Mark Carney, comes to the Pound’s rescue
Today, the spotlight is on the German economy. The November estimate of the nation’s GfK consumer confidence index registered a drop from October. Separately, the nation’s import price index continued to fall in September.
In the UK, the just released data showed that BBA mortgage approvals advanced above expectations for September. Market participants will divert their attention towards the US later today, with two reports likely to receive attention ahead of Friday’s first look at third quarter GDP data: the US services PMI for October and new home sales for September are up for release.
Pound Sterling – UK Markets
Yesterday, the Pound witnessed a mini flash crash and dipped below the crucial 1.21 mark against the greenback, its lowest level in two weeks. This time, Chancellor of the Exchequer, Philip Hammond, was the culprit. He indicated that the British government would not interfere in further quantitative easing (QE) from the Bank of England (BoE), thus opening the door for more QE and further devaluation of the Pound. He also warned that the European Union might adopt a vindictive stance against Britain and give it a bad deal as punishment for leaving the common currency bloc.
However, the BoE Governor, Mark Carney, came to the Pound’s rescue later in the day. During his testimony at the House of Lords, the central bank chief stated that he is not a fan of negative interest rates and does not want the Pound to dive further. This helped breathe new life into the battered Sterling and it recovered some of its lost ground. Separately, data from today’s economic calendar showed that UK’s BBA mortgage approvals picked up from a 19-month low level in September.
US Dollar – US Markets
The greenback strengthened against most of its major peers yesterday, amid mounting expectations that the US Federal Reserve (Fed) would increase the interest rate before the end of the year. On the data front, US consumer confidence dropped more than anticipated in October, after reaching a 20-month high in September, dampening optimism over the health of the nation’s economy. In other economic news, US home price growth accelerated on a monthly basis in August, as lack of inventory and low interest rates boosted prices to near record levels. Meanwhile, the Richmond Fed manufacturing activity remained sluggish in October.
The US Dollar is trading weaker against most of its major counterparts this morning. Market participants will keenly watch US Markit services PMI, goods trade balance, new home sales and MBA mortgage applications data, scheduled to be released later today. Moving forward, investors will keep a close eye on the US gross domestic product and durable goods orders data, due later this week.
Euro – European Markets
The shared currency is trading higher against the US Dollar and the Pound this morning. Data released earlier in the session showed that German consumer confidence surprisingly declined for November, falling to its lowest level since April this year. Separately, the nation’s import price index continued to fall in September. However, on an annual basis, the pace of fall in import prices slowed for the fifth consecutive month. In other economic news, French consumer confidence slightly advanced in October and Italian retail sales improved for August.
Yesterday, the European Central Bank (ECB) President, Mario Draghi, defended the central bank’s actions by stating that the ECB’s aggressive bond buying programme and ultra-low rates have not caused any harm to German households. He further reiterated that the ECB would keep its policies in place until it reaches its goal of keeping the inflation just below 2.0%. His comments will reinforce expectations that the central bank plans to boost its €1.7 trillion bond purchase programme at its next monetary policy meeting in early December.
Other Currencies – Highlights
The Australian Dollar surged against the greenback this morning, after Australia’s consumer price index figures advanced above expectations for the third quarter, hinting that the Reserve Bank of Australia (RBA) might temper its rate cut views. Data from the Australian Bureau of Statistics showed that the nation’s consumer prices exceeded expectations both at quarterly and annual levels. The RBA is scheduled to hold its monetary policy meeting and publish its revised forecasts next week. The upbeat third quarter inflation figures will now give the central bank a reason to pause rate cut. Separately, in China, Australia’s largest trading partner, the Westpac-MNI consumer sentiment index advanced to a 6-month high level in October, as consumers' willingness to spend got a boost.
Looking ahead, there are several economic data-points scheduled for release later this week. These include Australia’s HIA new home sales and producer price index along with the nation’s import and export price indices data.