Dovish Bank of England comments send the Pound lower
25/Nov/2015 • Currency Updates•
UK borrowers and importers enjoyed a sigh of relief yesterday as Bank of England Governor Mark Carney took the wind out of the Pound’s sails by indicating that rates may be kept on hold for longer than the investment community had expected. This provides further weight to the argument that the Bank of England will refrain from hiking rates until deep into 2016.
As a result of Carney’s comments the Pound depreciated across the board on Tuesday, slipping from its three-month high on a trade-weighted basis. Carney, speaking alongside other central bank members at the BoE’s inflation report hearings, reiterated concerns around the effect a strong Pound on the UK’s overall exports.
Traders are likely to favour the safe haven currencies in the coming days, as tension between Turkey and Russia continues to unfold. In fact, investors piled into the safe-haven Swiss Franc and Japanese Yen yesterday.
US durable goods orders will be the focus for traders today in what is a data-packed day across the Pond due to the Thanksgiving holiday in the US tomorrow. Jobless claims, service sector growth and consumer spending figures could all cause US Dollar volatility this afternoon.
Major currencies in detail:
More dovish BoE comments meant that the Pound ended 0.4% lower against the Dollar and 0.5% down versus the Euro yesterday.
There was little new information from the Bank of England yesterday, with policymakers again reiterating rates would go up slowly when the time was right, although there was little indication as to when this might be the case.
Despite some typically dovish comments from Chief Economist Andy Haldane that suggested risks to the economy were skewed to the downside, Carney acknowledged that the next monetary policy move would still likely be up, although Sterling strength was complicating matters more than the recent fall in energy prices. The overall message was vague, with policymakers clearly remaining split over the central bank’s next move.
The Autumn statement will be presented today in the House of Commons by George Osborne, just after midday. While a significant economic event in the domestic economy, this generally proves not to be a major market mover in the currency markets.
The Euro strengthened throughout the course of the day yesterday, ending 0.2% higher against the US Dollar after some encouraging data out of Germany.
The latest confidence indices from IFO painted a far more upbeat picture in Europe’s largest economy in November. Business confidence soared to its highest level in 17 months in Germany despite the recent Volkswagen scandal that continues to dominate its car manufacturing industry. The business climate index rose to 109 from 108.2, with manufacturers expected to ramp up production in the coming months.
Earlier, growth in Germany remained unrevised at 1.8% on an annualised basis, buoyed by continually robust domestic demand.
With just second-tier releases in Italy and France this morning, attention for Euro traders will likely be on events elsewhere today.
The US Dollar dipped yesterday, despite impressive growth data, down 0.1% against its major peers.
Yesterday proved to be a mixed day as far as economic indicator data was concerned in the US. There was positive news on the growth front, with the economy expanding by a faster than expected 2.1% on an annualised basis in the third quarter of the year, much higher than the 1.5% that was originally quoted. Despite this strong upward revision, growth still slowed from the 3.9% recorded in the second quarter of 2015. The report showed that consumer spending remained strong, no doubt boosted by recent improvements in the US labour market.
By contrast, consumer confidence tanked this month. The confidence index, measured by the Conference Board, declined substantially from a revised 99.1 to just 90.4, its lowest level since September 2014. This was somewhat surprisingly driven by worries over the jobs market, despite the recent robust level of job creation at the latest labour report.
Rest of the world
The Turkish Lira plunged during the London session, making it one of the worst performing emerging market currencies against the US Dollar, with investors concerned following increasing tensions between Turkey and Russia.
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