Pound Rises in Expectations of Rate Hike
The Pound rose against the US Dollar and the Euro as data released by the Office for National Statistics (ONS) showed that the British GDP grew more than anticipated in the third quarter of the year. The services sector was the one that boosted economic growth, followed by the manufacturing one. The stronger than expected GDP figures lifted hopes for an interest rate hike by the Bank of England (BoE) in the upcoming monetary policy meeting, next Thursday.
Brexit Secretary David Davis testified before the Select Committee, expressing his belief that a free trade deal with the European Union (EU) will be agreed before March 2019. In the US, Donald Trump took the opportunity of a lunch meeting with Republican Senators to ask them their opinion on the next Fed Chair. Media sources reported that John Taylor, a Stanford professor, was the favourite choice.
Pound Sterling – UK Markets
Today, the Pound strengthened against the US Dollar with the exchange rate set at $1.32. Sterling also edged up against the Euro with the exchange rate set at €1.12. The Pound rose when published data showed that the country’s GDP grew in the third quarter more than expected by City analysts.
The ONS released a report which showed that the British GDP grew in the third quarter of the year by 0.4%, on a quarterly basis, better than the anticipated 0.3% figure. On an annualised basis, Britain’s GDP grew by 1.5% in the third quarter, surpassing expectations for a 1.4% reading. The bulk of growth came in from the services sector, which, according to the ONS, was “the largest contributor to GDP growth with a strong performance in computer programming, motor trades and retail trade.”
Some analysts mentioned that the 0.4% GDP growth rate is still below the UK’s long-term growth rate and they note that 2017 will be the worst year for the British economy since the financial crisis that hit the country ten years ago. They stress that economic growth remains weaker than in 2016, adding that it is still tepid if compared to the other G20 economies. Philip Hammond expressed his certainty that the British economy is resilient and that his next plan is to boost work productivity.
US Dollar – US Markets
The US Dollar lost ground against the Euro with the exchange rate set at €0.85. The US Dollar Index rose, coming in just below the 94.00 mark. In the afternoon, the US Census Bureau will publish data regarding durable goods orders and new home sales in September.
President Donald Trump had a lunch with the Republican Senate leadership, during which he asked senators for their opinions on the nominations for Fed Chair. According to CNBC sources, Trump asked senators who would they choose between Fed Governor Jerome Powell and Stanford professor of economics John Taylor. According to Bloomberg, Taylor was the choice of the majority. The President has indicated that he will announce Janet Yellen’s successor right before he leaves for his trip to Asia.
The Senate majority leader, Senator Mitch McConnell denied a CNBC report which said that the tax reform bill won’t be voted by three Republican Senators, including John McCain. CNBC had cited an unnamed adviser in McConnell’s office. Senators Paul and Corker have expressed their doubts on how the tax reform will affect the federal budget deficit. The formal bill is expected to be released after the 1st November.
Euro – European Markets
The Euro rose against the US Dollar with the exchange rate set at $1.17. The single market currency recorded marginal gains, despite the positive data coming from the German economy.
The CESifo Group published its German business climate survey for October. The survey showed that business climate in Germany surprisingly improved. The statement accompanying the survey said that the German economy didn’t seem to be affected by political developments. It also stressed that in case the business climate index improves again in November, then economists will have to consider raising growth forecasts.
In Italy, industrial orders rose in August by 12.2%, on an annualised basis. Industrial sales grew by 3.4% in August, on a year-to-year basis, declining from the 4.0% figure recorded in July. In Spain, Prime Minister Mariano Rajoy spoke in the Parliament and said that elections in Catalonia would be a good move. Rajoy stressed that Article 155 will help avoid further economic consequences from the political tension in the region of Catalonia.
Other Currencies – Highlights
Sterling jumped against the Australian Dollar, trading at 1.71 AUD. The Aussie fell when the Reserve Bank of Australia (RBA) announced that inflation in the third quarter came in at 1.8%, on an annualised basis, missing expectations. Inflation in the third quarter, on a quarterly basis, also came in lower than expected at 0.6%. As a result, the Aussie hit a three-month low against the US Dollar.
The Pound strengthened against the New Zealand Dollar, trading at 1.91 NZD. In the evening, Statistics New Zealand will release data regarding the trade balance deficit in September, which is expected to have declined. Winston Peters, the leader of NZ First, will be the new Deputy Prime Minister and Minister for Foreign Affairs in Jacinda Ardern’s cabinet.
Sterling advanced against the Swiss Franc, trading at 1.31 CHF. UBS published its September Consumption Indicator, which rose to 1.56 from 1.50 in August.