Gearing up

A little headway

All eyes were on the heads of the European Central Bank and Bank of England yesterday as both were speaking or rather defending current policies. The lack of other meaningful data releases did nothing to decrease the pressure. If we look at the exchange rate movement first it is interesting that it doesn’t quite tally with what was said. 

The pound initially lost ground as investors feared the worst given Mark Carney’s recent track record but his latest comments appear to be a little more positive. He hinted that the BoE does not want the pounds value to drop much further due to the inflationary impact making it more difficult to loosen monetary policy further if necessary. He even went as far as to suggest that the current pessimism regarding the future of the UK is based on “mistaken analysis”. Although far from a rallying cry for the pound it was enough to enable the pound to quickly recover the lost ground and even make a little headway against the US Dollar. 

Investors quickly lose interest

The Euro’s movement are more difficult to understand. Mario Draghi defended the European Central Banks ultra-loose policy; “We remain committed to preserving the very substantial degree of monetary [easing] which is necessary to secure the ECB’s goal of keeping inflation just below 2%”. 

Now this suggests there is a greater chance of further stimulus measures rather than any chance of tapering at their next meeting in December and you could argue that this should have had a negative effect on the Euro. However, after an initial drop in the immediate aftermath investors quickly lost interest and the Euro soon recovered and currently sits around a quarter of a cent higher against both US Dollar and the Pound. 

Fresh Aussie Dollar

The Australian Dollar is the biggest winner of the last 24 hours posting a strong inflation figure dashing hopes of a further interest rate cut when the Reserve Bank of Australia meets next week or at the final meeting of the year in December. The Aussie Dollar posted a fresh 3 year low against the pound.

We now gear up for the biggest data release for the week, due tomorrow morning is the first UK GDP release since Brexit. A figure around 0.3-0.4% is expected and would show only a modest decline that could be blamed on the wider global decline. Anything lower than this will be harder to ignore and could lead to another difficult day for the pound.