Sterling recovers ground after recent sharp depreciation
08/Sep/2015 • Currency Updates•
Sterling was given a respite from its recent sell-off yesterday, despite limited data, gaining by 0.7% against the US Dollar and by 0.35% versus the single currency. The Pound has lost almost four percent of its value in the past two weeks, plunging to a four month low as traders continue to raise doubts over a Bank of England interest rate hike.
There was further gloomy news for the manufacturing sector in the UK yesterday, following on from last week’s disappointing performance of the flash manufacturing PMI. Manufacturer’s organisation EEF suggested that the economic slowdown in China has hit manufacturing output and exports. The survey of over four hundred businesses showed that export orders had fallen to its lowest level in six years, over the past three months, with renewed Eurozone tensions and a slowdown in emerging markets causing growth forecasts for the sector to be revised sharply lower from 1.5% to 0.7% for 2015.
The delayed release of house price growth from Halifax is due out of the UK this morning. However, all eyes will turn to Thursday and the release of the minutes from the Bank of England’s monetary policy meeting. The all-important vote on interest rates will, as always, provide clues as to timing of the first interest rate hike in the UK since the financial crisis.
Despite mixed data out of the Eurozone as markets opened for the week, the Euro was able to appreciate against the Dollar, rising by 0.35%.
Industrial production in Germany continues to remain subdued, although rebounded somewhat in July, in a sign that Europe’s largest economy is weathering headwinds from a slowdown in global growth. Output in the sector rose by 0.7% on a month previous, following a sharp decline in June. However, on an annualised basis, industrial expansion remained sluggish, increasing by just 0.5% despite rising domestic demand and continued growth in the Euro-area.
Meanwhile, the latest investor confidence survey from Sentix missed even the most pessimistic of forecasts. The index declined from 18.4 last month to a seven month low 13.6 in September, with the recent slowdown in China weighing on growth expectations, particularly in Germany. This is unsurprising given the country has the greatest trade exposure to China of all the 28 European Union nations.
There are a couple of key announcements in the Eurozone this week. A revision of second quarter growth data at 10am London time today will be in focus. This is followed on Friday by the latest inflation data for August.
Markets in the US were quiet yesterday, with the country observing a national holiday for Labor Day. The US Dollar index remained stable, declining by just 0.2%, primarily driven by a further stabilisation in stock prices.
With Chinese stocks not capitulating as many had feared after a four day holiday in the country, the Dollar was able to gain against safe-haven currencies, appreciating against both the Japanese Yen and Swiss Franc. This stock stabilisation, coupled with continued sentiment towards the Greenback following last Friday’s solid labour report, meant that the US Dollar held its own throughout the day, despite losses against both the Pound and Euro.
Markets in the US are open as usual today, and will see mostly second-tier economic releases in the US, including the labor market conditions index and consumer credit change. With the data-dependent Federal Reserve less than two weeks away from its September interest rate decision, data in the US between now and then will likely take on added importance.
Rest of the world
Turkey’s Lira hit yet another fresh record low against the US Dollar yesterday, after security concerns worsened following a bomb attack by Kurdish militants on Turkish troops.
Verbal intervention in Zambia caused the Kwacha to rally strongly, while over in China, foreign exchange reserves plunged by $94 billion in August, as the central bank protected its currency following its recent devaluation.