GBP/EUR at Five Year Low, US Fed Hike Bets Weaken Commodity Currencies

Published: 5 Oct at 1 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, France, Germany, Italy,

Pound Sterling (GBP)
Market shock at the revelation Article 50 will be triggered by the end of Q1 next year has not abated yet. The Pound remains around a 31-year low versus the US Dollar, while GBP/EUR exchange rates have weakened to a five-year low. Today’s services and composite PMIs may have eased recession fears, but investors had been hoping for a stronger uptick after the performance of the earlier manufacturing and construction measures this week. Services was expected to weaken to 52.2 but instead only weakened to 52.6.

Euro (EUR)
The Euro is making positive movements across the board today, despite the release of mixed finalised Eurozone PMIs. Germany’s composite and services indices bettered forecasts, rising to 52.8 and 50.9 respectively, while the Eurozone services edged higher to 52.2 unexpectedly. However, French, Italian and Spanish indices weakened more-than-expected. Overall, Eurozone private sector activity hit a 19-month low.

US Dollar (USD)
Soft trading can be seen for the US Dollar so far today, with sources of support countered by the approach of high-impact data. Fed rate hike bets have climbed to 63.4% today after official Charles Evans commented that he wanted to see higher interest rates soon, saying that November may even be a possibility. While Evans doesn’t currently vote on interest rates this year, he does get a vote in 2017, so markets are reacting positively to the news that another hawk will get a say on monetary policy next year. The ISM non-manufacturing composite index will be released later today and could firm hike bets if it shows the forecast rise.

Canadian Dollar (CAD)
Yesterday’s news that the International Monetary Fund (IMF) had lowered their 2016 growth forecast for Canada continues to weigh on the Canadian Dollar today. The forecasts, released as part of the Fund’s World Economic Outlook, are -0.2% lower than projections given in July, with 2016 GDP now pegged at 1.2%, while the IMF estimates the Canadian economy will expand 1.9% in 2017. This is keeping CAD below opening levels, despite climbing oil prices on the hopes of a significant drop in US inventories.

Australian Dollar (AUD)
The Australian Dollar is mixed today, with strengthening odds of a US rate hike in December weighing on risk-appetite. AUD has gained some support from the latest August retail sales figures, which have posted an above-forecast growth rate. After stagnating in July, sales volumes expanded 0.4% instead of the 0.2% anticipated.

New Zealand Dollar (NZD)
The latest ANZ commodity price index has seen a strong acceleration in price growth from 3.2% to 5.1%. This bodes well for the New Zealand economy given how reliant upon commodity exports the country is. However, this has failed to overpower the dragging effect of yesterday’s dairy price decline at auction. An advancing US Dollar is also pressuring NZD lower.
As of Wednesday, 5th October 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1379, GBP USD exchange rate was 1.2752, GBP AUD exchange rate was 1.6757, GBP NZD exchange rate was 1.7805, and GBP CAD exchange rate was 1.6816.

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