USD demand knocks GBP

Without any real data out yesterday to sway Britain’s pound, GBP still managed to trade strongly against its opposing numbers – the highlights being a 1 month high against CAD and 12 month high against CHF. We also saw three days of gains on the trot against EUR, but the flipside was a drop against the dollar following increased demand for USD in yesterday’s trading. There isn’t much meaty data out today but we will see a CBI Distributive Trade survey which will give some sort of insight into short term trends within the wholesale distribution and retail sectors – expectation are that there’ll be a drop-off in UK activity. The highlight of the day will be Bank of England (BoE) Governor Mark Carney speaking at the Institute and Faculty of Actuaries General Insurance Conference, where as usual, the markets will hang on his every word for a hint of policy change or a rate rise.

European Central Bank (ECB) President, Mario Draghi, commented that depreciation of the euro is in line with the divergence of monetary policies around the world. He claimed that whilst other countries and economies would acknowledge recovery, the ECB policy would remain, “accommodative through time for an extended period of time”. The euro saw big losses against the dollar (6% since June) after announcing measures that included interest rate cuts and longer term loans for banks. The biggest problem being the issue of inflation, which remained at 0.4% in August – the weakest pace in almost 5 years. EUR/USD saw lows of 1.27745 interbank (IB) yesterday, as German IFO business climate data came in worse than expected at 104.7 against the forecast of 105.9. However, despite this it still traded with the range published yesterday (1.2740 – 1.2955). Today, sees tier three Italian retail sales data as the highlight, forecast to grow to 0.2% up from last month’s 0.0%. And as such, any volatility against the euro may be driven from the dollar.

The US provides a little more in the way of data for the market to get its teeth into today, in the form of monthly durable goods orders, core monthly durable goods order and the unemployment claims figures. Durable goods orders are forecast at -17.7% against a positive 22.6% last month, with core goods forecast at a positive 0.7% against last month’s -0.7%. We can expect market movement here, as we know emphasis is placed on manufacturing and the labour market in the US, as a guide to the stability of the economy. The unemployment figures are seen as a pre-cursor to the non-farm payrolls due next Friday, giving an indication of new unemployment claims, due to tick up from last month’s 280k to 294k. Once again, eyes will be on the US over the next 10 days, as key data will give more definition to the economic health. Coupled with a falling euro and the possibility of a pound sell off, the dollar may start to see further investor support and offer more familiar trading levels. In other news, it is reported that Canada is getting close to eliminating its budget deficit in the year that started 1st April. Canadian Prime Minister Stephen Harper, claims that Canada will be expecting, “healthy surpluses” in the coming year. However, Canada’s economy is very much linked to the US, with much of their economic policy influenced by export growth to the US and investor reaction to Fed policy. Years of low interest rates have rallied the economy, particularly in terms of consumer spending, however Harper, warned that many Canadian households would be vulnerable to a rate hike.