Sterling Leads the Way – 24th August 2016
Sterling Leads the Way
The US Dollar had a pretty good day, strengthening by half a cent against the Euro, following strong data for US new home sales which rose by 12.4% in July.
It was the biggest monthly increase in nearly three years but it wasn’t the main reason for the US Dollar’s rise. The main driver was sentiment. Investors have got it into their heads that when Federal Reserve chairperson Janet Yellen speaks on Friday she will do so in a hawkish tone. Despite Ms Yellen herself saying nothing to encourage this thinking, the hawkish comments from her FOMC colleagues has given investors the belief that Ms Yellen will share those views. Could we therefore see an interest rate increase before the end of the year and perhaps as soon as August?
Ahead of the US Dollar yesterday Sterling led the way, rising by an average of 0.7% against the other dozen most actively-traded currencies. Its smallest gain was a fifth of a US cent and its biggest was against the South African Rand, which took a tumble. The CBI’s Industrial Trends Survey was the only UK ecostat and it did not disappoint. At -5 it came in four points better than expected. There was no immediate reaction to the figure by Sterling but it will have encouraged more of the profit-taking that has supported Sterling in the last few days.
The Rand though was cast adrift yesterday afternoon after finance minister Pravin Gordhan was summoned by police in connection with offences alleged to have taken place when he was head of the South African Revenue Service. Financial markets’ respect for Mr Gordhan is apparently not shared by President Zuma and there is more than a whiff of political shenanigans about this latest move. Investors therefore marked down the Rand, which was 4% lower on the day.
There are very few ecostats this week and today in particular; earlier this morning we had German second quarter growth which was unchanged at 0.4%. This morning brings figures for South African inflation – irrelevant in the light of the finance minister’s predicament – and the narrow BBA measure of UK mortgage approvals. The US housing price index and existing home sales come out after lunch.
That’s your lot. Will sentiment be a good omen for the US Dollar again ahead of the Ms Yellen’s speech on Friday and will Sterling continue to benefit from profit taking?