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November 2016

Sterling stable ahead of Purchasing Managers’ Index

Published: Tuesday 01 November 2016

  • Sterling stable ahead of Purchasing Managers’ Index
  • Central bankers all on hold
  • Canadian growth may show unexpected uptick

As we enter the penultimate month of the year, the US is transfixed by the appalling treatment of peaceful protesters in Standing Rock. I love the reaction of the women of the Standing Rock Sioux. They performed their sacred Jingle Dance and allowed the press to film it for the first time ever because they believe it promotes healing power. Confronting massed fighting men equipped for all-out war with such honour and dignity says so much more about those trying to defile the sacred land that the Sioux own than it does about the Sioux themselves. 
The Reserve Bank of Australia (RBA) left their base rate on hold when they met overnight. That was entirely in keeping with market expectations but the Australian Dollar strengthened a tad as the RBA seemed to have moved away from any notion of another interest rate cut. The GBPAUD rate is within recent ranges at 1.60 as we start today in London.
The Bank of Japan also announced an ‘on hold’ decision after their two-day meeting.  The Yen was largely unmoved because this too was expected.
And we will now look forward to the US Federal Reserve. The Open Market Committee meets tomorrow and they are expected to leave their base rate and Quantitative Easing (QE) budgets on hold yet again as calls for rate hikes become more and more vocal.
I think I want to be a central banker. It looks like they work for a couple of days a month and don’t actually have to change anything for decades at a time but maybe I am missing something.
But before we get to the Federal Reserve meeting, we have a slew of data to get through today. The UK Manufacturing Purchasing Managers’ Index (PMI) is expected to show a small slow down. Sterling had a reasonable Monday but poor data here could knock the value of the Pound somewhat. Obviously the opposite is also true.
This afternoon brings the Canadian economic growth data. August Gross Domestic Product (GDP) growth is expected to reflect a slowdown year on year from growth of 1.3% to 1.2%. Those forecasts could be wrong though; with energy prices stabilising and robust growth from the US, there is every possibility the figure could be stronger and that would boost the CAD.
We will get some measure of the US economic performance in the form of the Manufacturing (PMI) later today. With so much negativity around, stability is as good as growth these days, so an index reading of 51.5, matching last month’s reading would be enough to give the USD some help.
Overnight tonight we will see the New Zealand wages and employment data. There is a feeling that the unemployment rate will drop to 5.0% and hourly earnings will be up a tad. That would be good news for the NZ Dollar and give the Reserve Bank of New Zealand (RBNZ) every reason to start thinking of interest rate hikes again.   Whilst a NZD rate of 1.70 against the Pound looks poor in comparison with what was on offer a few months ago, when we look back a few months from now, we may be having exactly the same thought unless Sterling can mount a recovery.


A man dies and is in the waiting line for judgement. He notices some souls head straight up to heaven whilst Satan stands by grabbing others and throwing them into a pit of fire and brimstone. Once in a while though, Satan throws one or two souls to one side.
Curious as to the process, the chap says to Satan, “So those souls over there; you get them but you put them to one side rather than throwing them into the fires of hell like the others. What’s the reason for that?”
“Oh,” says the Devil. “If they are from Wales, Ireland or Cornwall, we have to dry them out first.”

Today's Major Economic Releases

Market BST Data/Event Previous Expected
GBP 10:30 UK: Manufacturing Purchasing Managers' Index (PMI) 55.4 54.6
CAD 13:30 Canada: Gross Domestic Product (GDP) 0.5% 0.2%
USD 14:45 US: Final Manufacturing Purchasing Mangers' Index (PMI) 53.2 53.3
USD 15:00 US: Construction Spending month-on-month -0.7% 0.5%
CAD 17:00 Bank of Canada Governor Poloz speaks    
NZD 22:45 New Zealand: Employment Change 2.4% 0.6%
NZD 22:45 New Zealand: Unemployment Rate 5.1% 5.1%

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Daily Currency Analysis by David Johnson

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