UK Banks to Squeeze Consumer Credit
The Pound edged up against the US Dollar and the Euro today. In the UK, banks are planning to reduce credit availability to the lowest level in the last eleven years as it was revealed by a Bank of England (BoE) survey. Theresa May, speaking in the House of Commons, vowed that there would be no delay in funding emergency plans, in case Britain doesn’t reach a deal with the European Union (EU). May said that £250m has been already allocated to various government departments as part of a contingency plan. But Chancellor Philip Hammond said that he wanted to delay spending money on a “no-deal scenario” preparations until the last moment.
In the US, the US Dollar weakened as the Fed’s September meeting minutes showed that several members of the Reserve’s board are concerned that the low US inflation might not be transitory, with some of them asking to delay interest rate hikes until inflation ticks higher. The International Monetary Fund (IMF) is having its annual meeting in Washington. Mario Draghi, the head of the European Central Bank, is attending the meeting and is going to deliver a speech later in the day.
Pound Sterling – UK Markets
Today, the Pound edged up against the US Dollar with the exchange rate set at $1.32. Sterling strengthened against the Euro with the exchange rate set at €1.11.
The BoE’s Credit Conditions Survey, published quarterly, showed that UK banks expect the biggest decline in consumer credit availability in the next three months, since the fourth quarter of 2008. According to the BoE, credit scoring criteria for credit cards and unsecured loans became stricter, while banks slashed the number of unsecured credit applications. The past summer, the British central bank had warned banks, that reckless lending could enlarge the consumer debt problem and result in imposing new regulatory measures.
The UK house market is cooling according to a report by the Royal Institute of Chartered Surveyors (RICS). RICS’ economists note that sales and inquiries from potential buyers fell noticeably in September, while there is little evidence that the housing market will pick up soon. The higher priced segments of the housing market, such as some areas in London, are hit by a lack of demand due to affordability constraints. The report also stressed that the possibility of a rate hike by the Bank of England (BoE) has weighed in the purchasers’ decisions.
US Dollar – US Markets
The US Dollar strengthened against the Euro with the exchange rate set at €0.84. The US Dollar Index (DXY), which measures the value of the Dollar against six major currencies, gained ground coming in at 93.03. However, the September Federal Reserve minutes, released yesterday, failed to impress and boost further the US currency’s value.
According to the minutes, “many participants expressed concern that low inflation readings this year might reflect not only transitory factors, but also the influence of developments that could prove more persistent.” Some Fed policy makers said that their vote on rate hikes “will depend on whether the economic data in the coming months will increase their confidence.” The Fed board also expects the economic growth in the third quarter to be held down because of the hurricane effects, but they believe that rebuilding in the affected areas will fuel growth in the fourth quarter.
A Wall Street Journal (WSJ) survey showed that 28% of the economists asked, believe that the former Fed Governor, Kevin Warsh, will replace Janet Yellen as the Fed’s Chair. According to the survey, two out of ten economists think that Yellen could win a second term. Later in the day, the Department of Labour will publish the report regarding initial and continuing jobless claims accompanied by a separate report on September’s producer prices.
Euro – European Markets
The Euro weakened against the US Dollar, touching a two-week high with the exchange rate set at $1.18. In Spain, Prime Minister Mariano Rajoy gave five days to the Catalan leader, Carles Puidgemont, to clarify whether his statement in the regional parliament was a formal declaration of independence.
Eurostat published data regarding Eurozone industrial production in August. On an annualised basis, industrial production in the Euro-bloc expanded by 3.8%, surpassing analysts’ expectations for a 2.8% expansion. On a monthly basis, industrial production rose by 1.4%, much better than the 0.5% figure anticipated by market experts. The readings show that the Eurozone economy is well back on the road to recovery.
The ECB’s governing council member, Vitas Vasiliauskas, spoke at the IMF’s meeting and stressed that “normalisation of exceptionally accommodative monetary policy will be an unprecedented and challenging process with a longer-term perspective.” Peter Praet, the ECB’s Chief Economist, signalled that the central bank is planning a “lower for longer” quantitative easing (QE) tapering programme due to be announced in the end of October.
Other Currencies – Highlights
Sterling lost ground against the Australian Dollar, trading at 1.69 AUD. The Australian Bureau of Statistics (ABS) released data which showed that home loan approvals in August increased by 1.0%, double from what had been expected. A strong 4.3% gain was recorded in the value of housing finance approvals to investors. Westpac’s analysts said that the result comes despite more evidence showing a significant slowdown in Australia’s residential property.
The Pound dipped against the New Zealand Dollar, trading at 1.86 NZD. A report by the Real Estate Institute of New Zealand (REINZ) noted that house sales reached the lowest level in the last six years, in September. According to REINZ, the national median house price is NZ$ 525,000, which means that prices remained stable when compared to those from last year.
Sterling gained a bit of ground against the Swiss Franc, trading at 1.28 CHF. The new 10-Franc note was presented yesterday, while the Swiss National Bank (SNB) is planning to continue to issue high-denomination bills. The Bank has now been called to withdraw them to stop their use in criminal activities.