Sterling second best in October – 2nd November 2015

A couple of months ago Sterling was the odd-one out in the currency world, being sold off consistently. Between mid-August and mid-October it fell by an average of 3.3%, gaining ground only against the South African Rand. One currency to benefit was the Euro which strengthened by seven cents in the euphoria surrounding Greece’s third successful bailout. Since then Sterling has put in a decent recovery, rising an average of 2.7% and winning back five of those lost Euro cents.

Sterling in fact was the second-best-performing major currency in October, losing out only to the NZ Dollar, and it was top of the league last week as well. Compared with Friday morning it is higher, only just though, against everything.

The Australian Dollar on the other hand dropped a cent lower when the Far East opened this morning, affected by a soft purchasing managers’ index from China’s manufacturing sector. The Aussie later recovered when another Chinese PMI came in stronger than expected, leaving it less than half a cent lower on the day. Despite the benefit to the Australian Dollar the “stronger-than-expected” manufacturing PMI was still in the contraction zone at 48.3 and it was lower than the 49.8 reading that had hurt the Aussie Dollar earlier. There is certainly no sign yet that Chinese economic growth is pulling out of its recent dip.

The biggest loser over the weekend was the US Dollar, which lost more than a cent to Sterling. It spent the whole of Friday afternoon on the retreat, apparently because investors were disappointed by the American personal income and spending data and by a two-point fall, to 90.0, in the Michigan index of consumer sentiment.

We have already had half a dozen manufacturing PMI’s already this morning and there are another dozen to come today from Europe and North America. Tonight the Reserve Bank of Australia is expected to keep its benchmark interest rate steady at 2%. The manufacturing PMI’s from Japan and Sweden were higher on the month. Switzerland and Italy are also forecast to deliver improvements. That could reflect badly on Sterling if, as expected, the UK measure fades to a two-year low.

Few analysts reckon the RBA will deliver a rate cut tonight. What it might do, though, is include in its statement a warning that it is leaning it that direction. Any such comment would be likely to weigh on the Aussie Dollar and also, possibly, on the Kiwi Dollar.