Sterling bounces back from Friday weakness

Despite Friday’s disappointing Brexit speech, Sterling made a stellar recovery yesterday.

The pound is continuing to rack up the gains today. GBP/EUR has risen to €1.1403 and GBP/USD to US$1.3496. GBP/AUD is at A$1.7024, GBP/NZD at N$1.8682 and GBP/CAD at C$1.6704.

Read on to see why the biggest drivers of the day will come from the US data calendar…

What’s been happening?

The pound was able to bounce back from Friday’s weakness yesterday, even though the Bank of England’s (BoE) Financial Policy Committee (FPC) released a report warning over the extent of UK household indebtedness.

With markets still expecting the worst, the downside risks to pound exchange rates have diminished, so investors were inclined to buy the cheapened GBP from its lows.

Meanwhile the euro was hit by the results of the weekend’s German Federal Election. Angela Merkel hung onto power, but both her Christian Democratic Union (CDU) party and the Social Democrats (SPD) saw their worst performance since the Second World War.

This leaves the far-right Alternative for Germany (AfD) as the third-largest party and Merkel now has to attempt to negotiate a coalition with other minor parties; potentially creating weeks of uncertainty for the Eurozone’s largest economy.

The US dollar was able to benefit from this uncertainty, although it still made notable losses against the pound.

What's coming up?

The only UK data set for release today is the BBA loans for house purchase figures for August. Considering the Financial Policy Committee just warned about the extent of UK borrowing, a rise in home loans could cause a few jitters in the pound.

The Eurozone data calendar contains only a speech from European Central Bank (ECB) official Peter Praet. Should he mention the health of the Eurozone economy or the state of monetary policy, the euro could see some strong movement as markets reprice the odds of monetary tightening later this year.

The US data calendar will be much more volatile. Consumer confidence figures for September are due out mid-afternoon and are expected to show a slide from 122.9 to 120. Later, Fed officials Brainard and Bostic will make speeches before Chair Janet Yellen makes an address of her own.

Given that Yellen’s speech is on ‘Inflation, Uncertainty and Monetary Policy’, it is highly likely she will make comments that will affect the outlook for interest rates and the balance sheet, leading to a shift in US dollar exchange rates.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.