Last Thursday’s Bank of England (BoE) monetary policy meeting caused a significant drop in the Pound from which it has been unable to recover. Markets were expecting interest rates to be cut, but the BoE went much further than that. They also upped stimulus measures by a total of £170 billion, including £100 billion to help banks absorb the ‘profit squeeze’ that comes from low interest rates while lending to consumers. Today’s manufacturing and trade balance data has printed significantly worse-than-expected, causing the Pound to slump. An estimate of the UK’s economic output for July is due later today.
Confidence and economic data has shown that the Eurozone continues largely unaffected by the UK’s Brexit decision, helping to calm investor concerns. However, issues remain regarding the Italian banking sector; one of the main four global credit ratings agencies – DBRS – has announced a surprise review of Italy’s credit rating. Italy’s strongest credit rating out of the major four agencies comes from DBRS, so a downgrade in the rating would have significant consequences for the government and domestic banking sector. Initial measures of Eurozone, German and Italian economic output are due out on Friday.
Mixed economic data caused significant re-evaluations of the US long-term economic outlook over the past few days. A key measure of the economy outside of the manufacturing sector weakened further-than-expected, but Friday’s crucial employment figures soared above forecasts, making two straight months of stellar growth. Weakness in Chinese data caused some jitters yesterday, but overall the markets are more confident in the US economy than they were at the middle of last week. Key sales and consumer confidence data is set for release on Friday.
Despite the recent Reserve Bank of Australia (RBA) interest rate cut, the Australian Dollar has been on a gradual uptrend over the past few days. A weakening outlook for the US economy and monetary policy is keeping the high-risk ‘Aussie’ on strong form. Even China’s recently weak trade data didn’t impact the Australian Dollar, as the figures showed a near-record level of iron ore imports. Tomorrow could see lots of movement for the Australian Dollar, with confidence and lending data accompanied by a speech from Reserve Bank of Australia (RBA) Governor Glenn Stevens.
New Zealand Dollar
Chinese data released at the beginning of this week further added to the downside pressures facing the New Zealand Dollar. Trade figures revealed a huge drop in imports, casting doubts over how lucrative trade between New Zealand and China will be going forwards. The New Zealand Dollar is being kept soft this week by the approach of a Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Thursday. Markets are widely expecting interest rates to be cut from 2.25% to 2.25% and so have pre-emptively moved away from the ‘Kiwi’ before it depreciates.
The almost continuous decline in crude oil prices started in mid-July has slowed and reversed over the past few days. However, the recovery has not been smooth and so the Canadian Dollar has remained largely on a downtrend. Friday’s unemployment figures disappointed forecasts, with -31k fewer people in work in July than in June when an increase of 10k had been forecast. Unemployment climbed from 6.8% to 6.9% as predicted.