Pound Sinks on Theresa May Uncertainty
The Pound hit a one-month low against the US Dollar and a three-week low against the Euro as the political turmoil in the UK takes a toll on the British currency. The pressure on Theresa May to quit increased when Grant Snapps, who has served as Tory chair, said that some cabinet ministers privately agree that the prime minister should be removed from position and call for a leadership election. Michael Gove, the environment secretary, said that a leadership election is not the correct way forward and praised May’s governing skills.
In the US, the House of Representatives passed a 2018 budget resolution, which is the first step towards the approval of the long-awaited tax reform. The GOP leaders want to trigger a process called reconciliation, which will allow the administration to pass the tax bill through Senate with a simple majority. In Spain, the Catalan government will defy the constitutional court’s decisions, saying that a debate on the independence referendum will take place in the regional parliament. This may well lead to a declaration of independence for Catalonia.
Pound Sterling – UK Markets
Today, the Pound dipped against the US Dollar, hitting a one-month low with the exchange rate set at $1.30. Sterling also dropped against the Euro, hitting a three-week low, with the exchange rate set at €1.11. Questions over Theresa May’s leadership continue to haunt the British currency.
The Halifax UK house prices report published in the morning showed that price growth hit a seven-month high. In September, house prices rose by 0.8%, on a month-to-month basis, instead of 0.1% anticipated by market analysts. UK house prices increased by 4% in the year to September with the average house price reaching the record high of £255,109. Economists at Halifax Community Bank said that “house prices continue to be supported by an ongoing shortage of properties for sale and solid growth in full-time employment.”
The Office for National Statistics (ONS) released data regarding labour productivity. The report showed that productivity fell by 0.1% in the second quarter of the year, after having recorded a 0.5% decline in the first quarter. ONS analysts noted that output per hour in the UK was 15% below the average across G7 countries. The ONS report pointed out that “UK companies in receipt of investment from abroad were significantly more productive than those that were not, in 2015.”
US Dollar – US Markets
The US Dollar rallied against the Euro with the exchange rate set at €0.85. The US Dollar Index (DXY) inched higher coming in at 94.08. The US currency and the S&P 500 index received a boost as the prospect of an agreement on a tax overhaul came closer.
The House of Representatives passed a 2018 budget resolution, which is considered the first step towards the major tax overhaul. The vote was narrow because, although Republicans hold the majority, eighteen of them voted against the resolution. The Senate Budget Committee, which is also controlled by Republicans, is expected to pass a similar budget bill. Passing the resolution through two Republican controlled chambers means that the GOP leaders would be able to trigger a process known as reconciliation. Thanks to the reconciliation process, the tax reform bill can pass through Senate with a simple majority of 51 votes, instead of 60.
Later in the day, the US Department of Labour will publish data regarding non-farm payrolls, the unemployment rate and average earnings in September. Analysts expect that the unemployment rate will remain stable at 4.4% and anticipate a decline in non-farm payrolls because of the hurricanes that devastated the southern states in the last month. In other news, a series of speeches delivered by members of the Fed’s board hinted at the increased possibility of a rate hike in December.
Euro – European Markets
The Euro fell against the US Dollar with the exchange rate set at $1.17. The single market currency traded near a seven-week low, pressed by the Dollar’s strength ahead of the US non-farm payrolls announcement.
Bundesbank published data regarding factory orders in Germany for August. The results surpassed expectations as factory orders in the last month of summer rose by 7.8%, on a year-to-year basis, instead of the 4.7% figure anticipated. On a monthly basis, German factory orders increased by 3.6%, almost four times more than expected. An ING report commenting on factory orders noted that the August readings was the strongest since 1999 and that the German economy looks all set to end the year at maximum speed.
In France, data showed that the trade deficit lowered in August, with imports dropping by almost €2bn. In Spain, the industrial output increased by 1% during August, instead of 0.2% that analysts were expecting. Regarding the political crisis in Catalonia, the Spanish constitutional court suspended the regional parliament session during which the results of the independence referendum were to be discussed on Sunday. The parliament’s leaders are threatened with facing criminal action if they defy the order.
Other Currencies – Highlights
Sterling weakened against the Australian Dollar, trading at 1.68 AUD. The Aussie had lost ground earlier in the morning, when Ian Harper, a member of the Reserve Bank of Australia (RBA) board said that an interest rate cut is possible if consumption across the economy loses momentum. Harper stressed that one of the RBA’s problems is the slow wage growth which limits household incomes. Harper added that the observed drop in retail sales is “another indication that we are not out of the woods.”
The Pound inched lower against the New Zealand Dollar, trading at 1.84 NZD. A BNZ report suggests that the upward price cycle in Auckland’s housing market has reached an end. “This is as far as it goes for Auckland. It might be another four to six years before we see the next cycle of rapid prices gains,” wrote Tony Alexander, who is BNZ’s chief economist. Alexander even advised real estate agents in the area to start looking for another job. Barfoot and Thompson, which is Auckland’s biggest real estate firm, announced that it sold the lowest volume of residential properties in September since 2008.
Sterling dipped against the Swiss Franc, trading at 1.28 CHF. Thomas Jordan, who is the Governor of the Swiss National Bank (SNB) said that the Swiss Franc is still strong, despite its recent decline and added that this requires the SNB to go on with its monetary expansive policy. Jordan added that Switzerland’s economic growth is relatively solid.