With no direct data to rely on, Sterling investors instead have to hope for further deals made during Chinese President Xi Jinping’s last day of his state visit to the UK. The Norther Powerhouse project aims to reinvigorate the United Kingdom as a manufacturing super power. The depreciation can be linked to traders continuing to digest the particularly dovish speech from Mario Draghi yesterday. Additional losses were the result of improved Federal Reserve 2015 rate hike bets after the People’s Bank of China (PBoC) surprised markets by cutting the cash rate by 25 basis points. With the EUR/USD exchange rate sliding, the US Dollar was buoyed against a number of its rivals and the GBP/USD pairing gave up its earlier gains.
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But shortly after that move lower, we got conflicting data out of the United Kingdom that showed brisk improvement in employment; key of which was wage growth (the pre-cursor to inflation) that, when combined with the deflationary print from the day before, amounted to the fastest real wage growth in the United Kingdom since the Financial Collapse.
The yen had a mixed performance as it reacted mostly to risk sentiment, gaining ground against the euro but losing to the dollar and pound. The preliminary estimate for October’s Manufacturing PMI came in at 54.0; eclipsing the market consensus of a drop from 53.1 to 52.9.
After Chinese economic data produced positive results, the Shanghai Composite Index advanced by 1.3%. This caused the GBP/AUD exchange rate to soften.
Richard Yetsenda, head of global markets research at Australia & New Zealand Banking Group (ANZ), told CNBC Friday that if there was a “perfect storm” of a Fed rate hike and more European Central Bank stimulus coinciding in December, parity could be on the cards. Tuesday’s third-quarter Gross Domestic Product is the most likely publication to stimulate Sterling movement next week.
The Pound Sterling to Euro (GBP/EUR) exchange rate was trending in the region of 1.3848, the Euro to Pound Sterling (EUR/GBP) exchange rate was trending in the region of 0.7223, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5404, the US Dollar to Pound Sterling (USD/GBP) exchange rate was trending in the region of 0.6492, the Euro to US Dollar (EUR/USD) exchange rate was trending in the region of 1.1123 and the US Dollar to Euro (USD/EUR) exchange rate was trending in the region of 0.8992 today.
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Many economists forecast steep inflationary growth in the United Kingdom over the coming months with the effects from weak commodity prices and falling university fees tailing off. As a result, a few analysts are going so far as to predict that the Bank of England (BoE) could increase the benchmark interest rate ahead of the Federal Reserve.
