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July 2016

Sterling slips on Martin Weale's comments and RBS warning

Published: Tuesday 26 July 2016

  • Sterling slips on Martin Weale's comments and RBS warning
  • NZ trade surplus narrows
  • Aussie interest rates depend on tomorrow's inflation data 

Sterling slipped overnight after RBS sent a message to their clients warning of the potential for negative interest rates. It's an odd and probably a political manoeuvre ahead of next week's Bank of England meeting. However, considering the fact that Mark Carney has already stated his dislike for negative rates, it is perhaps a little too pre-emptive. Monetary Policy Committee member Martin Weale has shifted his stance towards further monetary stimulus, although I am not sure he would advocate charging banks to deposit funds with the BOE. I suspect the Pound will regain some of those losses but it is going to be twitchy ahead of the BOE meeting and, before that happens, we will get UK economic growth data for Q2 tomorrow.
New Zealand's trade balance was not as positive as many had expected. NZ$127 million was down from May's data and below market forecasts as imports and exports fell. That has reignited the expectation of interest rate cuts from the Reserve Bank of New Zealand and would have weakened the NZ Dollar against the Pound if it were not for Sterling's dip. In the end, the GBPNZD rate fell overnight along with other GBP based currency pairs.
Across the Tasman Sea, the Reserve Bank of Australia is on tenterhooks ahead of tomorrow's inflation data. The market consensus is for a 0.4% quarterly growth rate but anything less than that will almost certainly trigger a rate cut from the RBA. Obviously the opposite is also true and stronger growth would forestall any moves from the RBA for the time being. Even without that data, there is a 70% chance of a rate cut next Tuesday. The Aussie Dollar, like the NZ Dollar, is stronger against the beleaguered Pound this morning.
This afternoon brings US consumer confidence and new home sales data; both crucial to the Federal Reserve's decision making. In the current uncertainty, it would be really odd for consumer confidence not to have taken a little knock but the forecasters are very unclear on the state of the housing market. So there is plenty of scope for USD volatility in later trade today; after 3pm UK time.
And I am very jealous of the people of Cornwall who will get to see the 30 foot mechanical miner making the 130 mile journey from Tavistock to Pendeen to celebrate Cornwall's mining heritage and 10 years of this area being listed by Unesco as a world heritage site. He looks amazing.   

The bad news

Multi-millionaire businessman Bob gets a call asking him to pop into his lawyer's office. So the next day he is sitting across the desk from Charles Worthington.
"I'll cut to the chase", says Charles. "I have some bad news and some very bad news."
"Oh great," says Bob. "Let's start with the bad news shall we."
Charles says, "Your wife has found a picture worth somewhere between four and five million Pounds."
Bob looks at his lawyer quizzically. "How is that bad news?"
"It's a photo of you and your secretary." says Charles.

Today's Major Economic Releases 

Market BST Data/Event Previous Expected
GBP 09:30 UK: BBA mortgage approvals 42.2k 40.2k
USD 14:45 US: Flash services PMI 51.4 51.2
USD 15:00 US: CB consumer confidence 98.0 95.6
USD 15:00 US: New home sales 551k 560k

FX Research by David Johnson

Daily Currency Analysis with William Busby

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