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October 2017

Sterling up on Gross Domestic Product (GDP) improvement

Published: Friday 27 October 2017

  • Sterling up on Gross Domestic Product (GDP) improvement
  • Aussie government loses majority
  • Turkish Lira falling fast
  • US GDP data should set tone for Federal Reserve
By David Johnson
 Sterling supported by interest rate predictions
We’ll start with Sterling because economic growth rose by 0.4% in the three months to September, as suggested by the first estimate of the Quarter Three data, and that was faster than the forecast 0.3%. Whether this is significant enough to prompt an early interest rate rise from the Bank of England when they meet next Thursday is an open question. However, the markets believe they will raise the base rate by 0.25% and that is supporting the Pound. An absence of UK data today may stall Sterling’s gains, but the markets are finding it hard to keep a good Pound down.
Turkish Lira falling foul of markets
The Turkish Lira, which has a history of decline and revaluation, is being battered by the markets at the moment and the Turkish Central Bank has said it will not intervene to strengthen it. The Lira has lost 7% against the Pound since 6th October.  This latest weakness has been spurred by hostility between the US and Turkey after America‘s Embassy in Turkey stopped issuing visas for Turks to visit the US. This may be a temporary hiatus, but it’s worth noting if you have a Turkish Lira requirement.
European Central Bank decision fails to ignite markets
The European Central Bank (ECB) left their base rate on hold when they met yesterday, but they did announce a reduction in their bond buying programme from January 2018. Monetary tightening of this nature would normally strengthen a currency, but we saw very little reaction from the Euro. Perhaps traders were expecting the outcome, or perhaps they are bored of the words of central bankers. Or maybe they were in the pub…
Australian politics in turmoil
Australian politics is in turmoil after the government’s one seat majority was removed when the New Zealand-born Deputy Prime Minister was deemed ineligible to be an Aussie MP. The Sterling – Australian Dollar rate has slipped back from the A$1.72 we saw a few days ago, but remains well above A$1.70.
US economic growth the big news for today
Today’s big data is American GDP growth. We will get those numbers at 12.30 GMT. The forecast is for weaker growth than the previous quarter. The Q2 figure of 3.1% (annual) was a spike and the Q3 data is more likely to be in the 2.5% area. That, or a lower number, may cause the Federal Reserve to pause before considering further interest rate hikes or other monetary tightening. Hence, a weaker number will weaken the US Dollar. The opposite is also true. So, beware, or take advantage of the volatility through automated orders around noon and afterwards today.
And the Associated Press is reporting that Honolulu in Hawaii has become the largest US city to ban people from walking across a street whilst looking at a mobile device. I really wish that were the case in the UK. That – and banning people from walking or cycling with headphones on. I can’t count the number of pedestrians and cyclists I have seen having near misses because they couldn’t hear the traffic as they crossed the road.
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Storm in a teacup?

Mike goes to the local pub and sees Sister Mary from the local Convent standing outside.

“Don’t go inside, Michael Connor,” she implores, “I know your mother well and she knows that alcohol is the work of the devil and it can only lead to paths you would not like to tread.”

“Sister Mary,” says Mike. “Have you ever tasted alcohol? It seems to me that, before you label something as evil, you should at least try it to see what you are talking about.”

“You make a very good point,” says Sister Mary. “I will try it, but I can’t be seen going into a pub. I’m sure you understand. If you could put a little whiskey in a teacup and bring it out to me, I will try it and then we can discuss it.”

So, Mike goes into the pub and asks the landlord for a small whiskey in a teacup. The landlord doesn’t question him, but puts the cup under the optics and pours a small whiskey as asked.

As he hands it to Mike, he leans over the bar and whispers, “I’m getting a little low on teacups, so could you please ask Sister Mary to send some back in?”

Today's major economic releases

Market BST Data/Event Previous Expected
USD 13:30 US: Advance Gross Domestic Product 3.1% 2.6%
USD 13:30 US: Advance Gross Domestic Product Price Index 1.0% 1.7%
USD 15:00 US: Revised UoM Consumer Sentiment 101.1 100.8
USD 15:00 US: Revised UoM Inflation Expectations 2.3% 2.3%