Markets Losing Direction

23 October, 2014

Simon Eastman

Wednesday was a mixed day for data but also a confusing day for sentiment, with mixed feelings across the three major currency pairs giving a clear direction to buy or sell hard to establish.

Bank of England minutes were the first release of the day, showing a 7-2 split to keep interest rates held at current levels with some stating they see “few signs” of inflationary pressures building over the coming months to give any reason for interest rate hikes any time soon. This follows hot on the heels of last week’s inflation data which confirmed this, as inflation fell further here in the UK. This has hurt the pound over the last week,, although we have had news from Europe and the US which have caused confusion. The result of this gave investors the trigger to sell off sterling again and the gains we saw Tuesday were trimmed.

Those gains on Tuesday, were made after comments by the ECB suggesting they were making plans to start a corporate bond buying program, which weakened the single currency. Yesterday, the EU had no data releases to talk of so it continued on the back foot against the US dollar, dropping nearly a cent over the day, coming close to the year low we had a couple of weeks ago. Against the pound, after the initial sell off in the morning, sterling managed a rally back ending up near a two week high.

So we know the pound is unlikely to have interest rate hikes any time soon, looking likely to not be before summer next year and the ECB are adding corporate bond buying to their tally of monetary tools in use (which are weighing heavily on the single currencies strength), which just leaves the US dollar. Surely with the recent rally over the past month investors can feel secure in plying funds into this? But it seems they dont, after the retail sales bombshell last week. Inflation figures yesterday came above forecast, but still hovering at just 1.7 percent, so they’re in the same boat as the UK when it comes to interest rate increases, with recent comments showing a definite lack of conviction when it comes to the Fed pushing ahead with any monetary tightening. As such, besides the gains made against the weak euro it stayed range bound against sterling.

Elsewhere yesterday, we saw Canadian retail sales coming in at a negative 0.3 percent, down on predications and also no change to the Bank of Canada’s monetary policy on interest rates, holding at 1 percent. The Loonie initially weakened, then strengthened, then weakened back as breaking news came across the newswires that multiple gunman had opened fire in the capital, killing a soldier at a war memorial and another shooting at the parliament buildings, leaving the city on lockdown. This is the second suspected terrorist motivated attack on Canadian soil this week after a soldier was hit by a car and killed, and while we all hope there are no more, acts of terrorism can have a dramatic effect on a currency so if there is, we could start seeing greater volatility on the GBP/CAD pairing for sending money to Canada.


On to Thursday and a busy day to contend with in ecostats terms. We start with German and EU services and manufacturing PMI, followed by UK retail sales and an industrial trends survey. After lunch there is US jobless claims, house price data and manufacturing PMI with EU consumer confidence mixed in at 3pm and finally of note, a speech from Bank of Canada governor Stephen Poloz at 3.30pm. Further volatility could be on the cards so make sure to stay in touch with the team here at CI for friendly guidance on your upcoming currency requirement.