Sterling Suffers After Positive Start

21 October, 2015

Simon Eastman

Tuesday we had another day of little data released to help investors decide which currency to back. The pound benefited on Monday and made some decent gains, with GBP/EUR posting the best levels in nearly a month.

Tuesday was a different story as we saw this trend reverse as a lack of UK data again gave nothing to support the under pressure pound. Despite poor German inflation figures it wasn’t core inflation so seen as non important. EU lending data was received positively ahead of the ECB meeting due on Thursday. Investors are speculating as to whether or not Mario Draghi and his cohorts will decide to add an additional program of QE on top of the current 18 month program. This will of course cause euro weakness, as the more of something there is, the cheaper it becomes. The lending figures helped quash the expectations that little bit more for traders as the EU continues to benefit from positivity.

The US dollar initially weakened against sterling, again suffering on the wrong end of the currency see saw with the gaining euro on the right end. The dollar lost another ¾ of a cent against the euro although clawed some back at the end of trade helped by some better than expected house build data and ahead of a speech by Janet Yellen where traders were looking for any hint of if interest rates will go up this year or not, but none was given.

The main winner yesterday was the Loonie which gained over two cents against sterling across the day’s trade helped by a recovery in oil prices. Today will again be a day with the Canadian dollar in focus as the Bank of Canada release their interest rate decision, policy statement and press conference. We have seen 2 rate cuts this year bringing the rates down to 0.5 percent. The question is whether they will see fit to bring another cut today, although with inflation remaining fairly stable and the oil price recovery, this is probably unlikely. If you need to transfer money to Canada, it may well be worth looking to book your rate this morning just in case the rally continues if a “no rate cut” decision is given.

In addition to the above, we kick of the day with UK public sector net borrowing for September, where a drop is expected. If we miss the mark its likely we will see the pound suffer. Following the closing bell we have a key speech by Bank of England governor Mark Carney so we will have to wait for Thursday to see the effects on the markets. Anyone with a large purchase to make with sterling might be wise to put an overnight Limit and Stop Loss Order in place, just in case the speech throws up any volatility as US and Asian traders digest the news overnight. Just give one of the Currency Index team a call for some friendly guidance.