The pound consolidated lower against a range of currencies this week. Early on, both HSBC and Barclays announced that they would be pushing back their expectations for an interest rate hike by a full year, to the first quarter of 2016 and third quarter of 2015 respectively. GBP/USD fell to a low of 1.5595 as this (as well as the dovish inflation report a week earlier) weighed on the pound.
Stronger than expected UK inflation data didn’t help the currency’s cause either, as it showed year on year inflation accelerated last month by 1.3% vs. forecasts for 1.2%. The news was largely shrugged off and as US data (including producer prices and NAHB housing numbers) beat forecasts that same day, GBP/USD continued to trade with a heavy tone.
Later on in the week, the pound got some respite as Bank of England minutes showed that two MPC members had voted to raise interest rates at November’s meeting. It was surprising to some that Martin Weale and Ian McCafferty hadn’t changed their mind in the face of a run of disappointing economic data of late. Furthermore, of the seven MPC members that voted to leave rates on hold, there were some that thought spare capacity would be used up quicker than the bank’s latest set of forecasts. It was enough of an excuse for investors to bid the pound higher.
By Alex Edwards at UKForex, an international money transfer service
On Thursday, the pound got another boost from better than expected headline retail sales data, with GBP/USD trading to a week high of 1.5733. The afternoon saw mixed data from the States with CPI coming in flat; the core reading printed 0.2% growth as expected. Later in the day, unemployment claims undershot forecast at 291K. However the markets would have been encouraged by a much better than expected Philly Fed reading. The index printed 40.8 when 18.9 was forecast, a big jump from last month’s 20.7 and the highest reading since 1993. Holders of the greenback will be hoping the cold weather the US is currently experiencing isn’t as severe as the polar vortex that so badly affected this first quarter’s GDP reading.
Meanwhile, the US FOMC minutes came and went without so much as a flutter in FX markets. Members debated whether to omit the phrase “a considerable time” when referring to when it might raise the Fed funds rate, but that’s about as interesting as it got.
In Europe, the week started positively for the euro, reacting well to better than expected German ZEW data. The investor confidence index rose for the first time in almost a year, jumping to 11.5 in November from a previous reading of -3.6. It finished the week lower though as the latest batch of PMIs from the eurozone disappointed.
ECB President provided the final nail in the coffin. He was forthright in a speech before the 24th European Banking Congress, repeating that the central bank stands ready to act fast and reiterating that they “are committed to recalibrate the size, pace and composition of our purchases as necessary to deliver our mandate”. EUR/USD gapped from 1.2545 to 1.2453 as he spoke.
GDP data will be the focus for markets next week with US prelim GDP due on Tuesday and UK second estimate GDP due on Wednesday. US durable goods and new home sales are out on Wednesday. There is little top tier European data early next week, but German and European CPI will be closely scrutinised on Thursday and Friday.
In our latest podcast, we talk about the state of US housing, run down the FOMC minutes, the Japanese jump, the Draghi drama and also talk oil:
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