#GBP ends the week on a high after a strange week of currency reactions – 11th September 2015
This week has been a strange one for currency reactions. For example, Sterling has strengthened by an average of 1.1% against the other dozen most actively-traded currencies despite some pretty mediocre economic data releases.
The British Retail Consortium reported increased retail sales but at lower prices. July’s trade deficit was the widest in 19 months as the exports fell to a five year low while both manufacturing and industrial output both registered unexpected monthly declines. The National Institute for Economic and Social Research estimated that economic growth slowed to 0.5% in the three months to August. Sterling did enjoy the minutes from the Bank of England Monetary Policy Committee when they revealed an 8/1 vote in favour of keeping interest rates unchanged.
At the back of the field was the NZ Dollar, losing 2.4%, just ahead of the Japanese Yen which fell by 2.7%. The NZ Dollar’s setback was due to the Reserve Bank of New Zealand decision to cut interest rates from 3% to 2.75%. It was not the cut itself that did the damage but the RBNZ’s comment that “some further easing in the OCR seems likely”.
The two North American Dollars have fallen by -1.5% against the Sterling in the last week, both because of employment data. In Canada unemployment rose from 6.8% to 7% while in the US, August’s 173,000 rise in non-farm payrolls was well short of the expected 218,000 increase.
As well as domestic data influencing a countries performance, China’s economic performance does have considerable influence on other currencies. More or less, when China is doing well so do the currencies of its trading partners but economic growth has slowed considerably and share prices are under downward pressure. The data wasn’t great this week either; exports were down by an annual -5.5% in August while imports plunged -13.8%.
Market reaction to China was strange. Usually you would expect investors to sell the commodity-oriented South African Rand and the Australian, Canadian and NZ Dollars and buying into the “safe-haven” Yen, Swiss Franc and the Euro. Instead the opposite happened based on a belief that the Chinese authorities will introduce fresh stimulus measures.
Next week the most important event will be the US Federal Reserve’s interest rate statement on Thursday evening. Whilst most analysts expect the Fed to keep its benchmark interest rate unchanged there is the possibility that it will announce the long-awaited increase. Have a good weekend.