Dear Subscriber, Please find below today's update which gives you an insight into the current market conditions, enabling you to keep informed and up to date on the latest currency movements. Headlines • Pound supported by strong CBI Manufacturing - government borrowing figures underwhelm forecasts.
• ECB policymakers at odds over monetary policy - Weidmann calls for Minutes to be published.
• Fed Minutes leave questions unanswered - USD rallies as 'Septaper' remains on the cards.
• GBP/CAD & GBP/AUD hit 3-yr highs - GBP/NZD up 2.3 cents.
Sterling The Pound strengthened broadly yesterday as a report from the Confederation of British Industry showed that UK Manufacturing is currently at a 2-year high. The long-term average of the CBI Total Orders Balance is -17, yet the indicator stormed ahead to a highly impressive score of 0 in August. Ordinarily the CBI report is seen as far less influential than its more famous PMI cousin, however, on this occasion the print was deemed market-moving because of its unexpected, but encouraging, swing to the upside. To illustrate the efficacy of the result it is important to note that Sterling rallied yesterday even though Public Sector Net Borrowing figures came in three-times worse-than-expected at -£1.6 billion. Euro Sterling snuck another 0.3 cent daily gain in against the Euro yesterday as European leaders squabbled over the best course of action with regards to monetary policy. During his last two press conferences European Central Bank Chief Mario Draghi has repeated the mantra that "interest rates will remain low for a prolonged period of time". The ECB President's dovish tone is shared by the majority of the Central Bank's Governing Council, however, Jens Weidmann of the Bundesbank said earlier this week that interest rates are liable to be hiked if inflation issues begin to compromise monetary policy transmission. The hawkish German Central Banker argued yesterday that the ECB should publish the Minutes of its policy meetings, a la the Bank of England and the Federal Reserve, in order to clear up the reasons behind discrepancies between policymakers. However, due to the variegated nature of the Bank it is unlikely that such measures will be put into place. The ECB has always maintained the argument that the Minutes should not be published because it would encourage Council members to act in the interest of their own countries. Later this morning the Eurozone Composite PMI result is expected to show an encouraging improvement to 50.9 in August, which could potentially give the single currency a helping hand.
US Dollar The Pound slid by around -0.8 cents in response to the FOMC Minutes report from July's meeting, falling from a fresh 2-month high, as the Federal Reserve kept 'Septaper' fears alive. Policymakers struck a decidedly neutral tone during the meeting and in all honesty nothing concrete was said: in attempt to elucidate the Fed merely managed to obfuscate. The Minutes showed that policymakers are not all reading from the same page as some were keen to taper straight away but others felt it prudent to be patient and evaluate the next stream of significant US data. Concerns surrounding the recent levelling out of American economic performance restrained FOMC members from unleashing a killer blow to risk appetite - by reducing asset purchases - but the report was generally seen to support the view that a small tapering will take place in September. The Minutes also raised the possibility of an alteration to the Fed's forward guidance policy in order to mitigate the fallout in financial markets when the US Central Bank does finally pull the plug on stimulus.
Canadian Dollar The Pound to Canadian Dollar exchange rate struck a 3-year high yesterday, after rallying by over a cent, due to the widely accepted notion that Fed stimulus will be tapered at some point in the second half of the year. Sterling also garnered support following the impressive CBI Manufacturing result and the 'Loonie' was also impacted by worries that this afternoon's Retail Sales print will come in softly at -0.4%.
Australian Dollar Sterling struck its highest level against the Australian Dollar yesterday since August 2010 as traders got their teeth into the FOMC Minutes report and interpreted the general tone to suggest that stimulus will eventually be slowed down. GBP/AUD soared higher by 1.3 cents in response to the report.
New Zealand Dollar The New Zealand Dollar followed the other commodity currencies lower against the Pound yesterday, declining -2.3 cents, as perceived riskier assets stalled amid fears that the Fed's cheap liquidity will begin to dry up by the end of the year. If you need any further assistance, or require a live dealing quote - please do not hesitate to contact me on 01736 335250 or send an email to info@torfx.com Regards,
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