Sterling crashes versus major peers; falls by 1.75% v EUR and 1.40% v USD, as Bank of England rule out further rate rises, in the short to medium term

Nov 3 • Morning Roll Call • 58 Views • No Comments

The standard economic orthodoxy works like this; when a central bank raises its interest rate, the value of the domestic currency rises, even if the rise has been telegraphed through the media and forward guidance is issued by the central bank some weeks earlier, warning of the rate rise. Whilst the rate rise can often be priced in, resulting in the movements of the relevant currency being less volatile than if the rise comes as a shock to the market, it’s highly unusual for a currency to collapse in value versus its peers, due to the proceeding statement issued by the central bank key executives.

In a bizarre and at times shocking press conference and inflation report, after the BoE announced a 0.25% rate rise at midday on Thursday, Mark Carney appeared to throw in the towel on the U.K. economy and throw the carefully crafted monetary policy and narrative under the bus, stating that the chances of further rate rises in 2018 were very small. Perhaps he’s casting an envious eye across the Atlantic and wishing that (similar to Janet Yellen), his tenure as the chief of a central bank would come to an abrupt end. Could anyone blame Carney for wanting out (despite being contracted until 2019) and not wanting to carry the can for the chaos of Brexit?

The pound collapsed versus its peers on Thursday; by over 1.5% versus the majority, GBP/USD fell by circa 1.45% and EUR/GBP rose by approx. 1.75%, one day losses generally inflicted due to an interest rate being lowered, not raised. Cable (GBP/USD) fell through the 100 DMA, which due to the historical fact it can often signal a change in investor sentiment, could mark a position trading swing low for GBP/USD.

U.S. equities rose on Thursday, after House Republicans produced their version of tax cuts, which will potentially make sweeping changes to both business and individual rates. The bill would cut corporate tax rate to 20 percent, from the current circa 35 percent and impose a tax up to 12 percent on multinational companies’ accumulated offshore earnings. However, doubts exist that the tax plan cuts will pass through Congress. The U.S. dollar fell moderately versus its major peers, with the exception of its exponential rise versus the U.K. pound. In calendar news the USA posted positive data in terms of unemployment claims, falling to 229k last week, with continuous claims also falling. WTI oil reached the highest level since June 2016, at $54.78 per barrel.

In relation to the Eurozone; Germany’s unemployment level remained unchanged at 5.6%, various PMIs for Italy, France Germany and the wider Eurozone either met, or beat forecasts. The euro experienced a mixed day versus its peers on Thursday, whilst making considerable gains versus USD and rising exponentially versus GPB, versus AUD and CAD the single bloc currency slipped.

U.S.DOLLAR

USD/JPY whipsawed through a tight bearish range on Thursday; falling twice through S1 to eventually recover, ending the day close to the daily pivot point and the 114.0 handle, at circa 114.07. USD/CHF slumped to S2, down circa 0.6% at one stage as New York opened, before recovering to end the day close to S1, down approx. 0.3% at 0.999. USD/CAD fell by approx. 0.8% on the day, crashing through S2, to close out the day at circa 1.2808.

STERLING

The U.K. pound collapsed versus its peers on Thursday, as a consequence of the BoE base rate rise being accompanied by the negative and dovish message that the rate rise was a one off event, unlikely to be repeated in 2018. GBP/USD collapsed through S3 to close out down circa 1.45% at 1.304, whilst breaching the 100 DMA sited at 1.308. GBP/AUD and GBP/NZD also breached S3, falling by approx 1.5%. GBP/CAD fell in a similar fashion, whilst also breaching the 200 DMA at 1.672, closing the day out at circa 1.6722.

EURO

EUR/USD whipsawed throughout Thursday, in a relatively tight bullish range. Initially rising through R1 in the Asian session, then falling back through the daily pivot point, the currency pair then breached R2, to eventually give up some gains, closing out the day at circa 1.657, up 0.3%. EUR/AUD and EUR/CAD fell by circa 0.3% to S1, whilst EUR/GBP rose by circa 1.75% to end the day at circa 0.8929, breaching R3, and briefly threatening to reach the 100 DMA.

EQUITIES AND COMMODITIES SNAPSHOT FOR NOVEMBER 2nd

• DJIA closed up 0.35%.
• SPX closed up 0.02%.
• FTSE 100 closed up 0.90%.
• DAX closed down 0.18%.
• CAC closed down 0.07%.
• EURO STOXX 50 closed down 0.23%.
• Gold ended the day close to flat at $1276 per ounce.
• WTI oil rose by circa 0.5% to $54.78 per barrel.

KEY ECONOMIC CALENDAR EVENTS FOR NOVEMBER 3rd

• GBP Markit/CIPS UK Services PMI (OCT).

• CAD Unemployment Rate (OCT).

• USD Change in Non-farm Payrolls (OCT).

• USD Unemployment Rate (OCT).

• USD ISM Non-Manufacturing/Services Composite (OCT).

• USD Factory Orders (SEP).

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