Pound recovers from worst levels

The state of household borrowing in the UK was looking slightly rosier yesterday after the latest credit data was released.

The pound is largely hovering around opening levels this morning, with GBP/EUR trending at €1.0590 and GBP/USD trending at US$1.2960. GBP/AUD is trading at AU$1.6350 and GBP/CAD at C$1.6337. GBP/NZD is currently bucking the trend, recording a 0.6% rise to hit NZ$1.8033.

The big data of today may be due from the Eurozone and the United States, but read on to find out why it could be the pound will benefit.

What’s been happening?

The pound was supported higher against the euro, and held steady against the US dollar, yesterday thanks to the latest consumer credit and mortgage data from the UK. Economists have been getting worried by the extent of household debt, so signs of slowing credit growth were actually received quite positively by the markets.

Meanwhile, mortgage approvals rose above forecast to a 16 month high; a relief given that the property market has been on an unsteady footing since the referendum, with house prices beginning to decline in some areas

The euro advance was limited yesterday as markets began to reassess their recent confidence. The currency was boosted after European Central Bank (ECB) President Mario Draghi failed to state in recent speech that it is too strong but, now the excitement has worn off, markets are wary of pushing the euro too high.

This is despite the fact that Eurozone business and consumer sentiment beat forecasts in August, and general consumer prices performed as well year-on-year as expected.

The US dollar was able to hold its ground yesterday thanks to a series of positive data releases. Second quarter GDP rose from 2.6% to 3%, against forecasts of revised estimate of 2.7%. Additionally, the ADP employment change figures for August beat forecasts by over 50,000, raising hopes for a strong performance from Friday’s key non-farm payrolls report.

What's coming up?

The day’s UK data may have already been released, but there is plenty on the Eurozone and US calendars that may push GBP/EUR and GBP/USD up.

As well as getting to grips with this morning’s German unemployment change figures, the euro will also have to contend with the Eurozone unemployment rate and inflation data for the currency bloc. Although overall inflation is expected to have picked up, the more important core measure is likely to hold at 1.2%. This won’t do anything to improve the odds of the ECB becoming more optimistic about the economy any time soon.

The key US data today will be personal consumption expenditure figures for July. While most central banks around the world use the consumer price index to gauge inflation, the Federal Reserve prefers personal consumption figures. Given that forecasts are for consumption to weakened moderately, the odds of an interest rate hike from the Federal Reserve in December could fall even further

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.