Daily analysis 09.08.2016:
A series of economic data from the UK, and the BoE member article, caused further global pound sell-off as well as caused the sterling to slide below the 5.00 zł level. The zloty is slightly stronger against major currencies, but it gave up some of yesterday's gains to the forint.
Most important macro data (CET – Central European Time). Estimations of macro data are based on Bloomberg information, unless marked otherwise.
- No economic data, which can significantly affect the analyzed currency pairs
Further pressure on the pound
Yesterday evening we paid attention to the commentary on a series of macroeconomic data which may affect the trading pound. However, the publications were not the key events today. A further pressure on the British currency caused the Bank of England member article in The Times newspaper. This was the main factor which brought the GBP/USD and the GBP/PLN pairs below 1.30 and 5.00 levels, respectively
Ian McCafferty is generally perceived as a hawkish BoE member. In January, he had even voted to increase interest rates, and at the last meeting of the BoE he did not support the increase in the scale purchase of government bonds. However, he decided to vote in favor of buying corporate bonds and lower interest rates.
In The Times article, we can find many of dovish elements. He noted a “dramatic change in the economic outlook for the UK" in the Inflation Report, and claimed that the central projection of the United Kingdom is "just avoiding a technical recession."
His slightly more conservative approach, in comparison to other members of the BoE, is due to the fact that most of the available data so far is based on surveys and they can give good signals on the direction of a change in business, but not to the sustainability of these changes.
At the end of the article, however, he clearly suggested that if the economy will move according to the "surveys’ signals," then he would support a further cut in interest rates and an increase in quantitative easing. McCafferty described the time frame as in the "coming months."
Theoretically, the BoE members’ opinion coincides with the entire central bank message, and with what we wrote right after the decision of the British monetary authorities, the data in the coming months will be crucial for the valuation of the pound. However, given that the whole article is quite dovish and the member represents more of the hawkish wing of the BoE, it has been received by the market as a suggestion to faster and deeper monetary stimulation in the future. It also caused more selling pressure on the pound.
Mixed data from the UK.
Other reports from the UK are not so obvious to the pound. The negative message for the pound should be a larger-than-expected current account deficit of goods. It topped 12.4 billion pounds in June while expectations were around 10 billion. This was the third highest deficit in the last 50 years. In addition, the deficit figures were revised upwards by 1.6 billion for the month of May.
The industrial production also looked weak. It fell on monthly basis by 0.3% against expectations of negative 0.2%. The data was also revised downwards by 0.1 percentage point for the previous month.
A positive surprise could be a relatively good condition of the retail sales compiled by KPMG and the British Retail Consortium (BRC). The like-for-like sales increased by 1.1% y/y while market consensus expected a decline of 0.7% y/y.
According to the BRC, warmer weather helped to boost demand in July. In addition, the retailers were offering more discounts. Overall, however, better data from the BRC/KPMG report may suggest relatively good official retail sales data published by the statistical office. This in turn would reduce the risk of further reduction in interest rates or increase the scale of the asset purchase, which would be positive for the pound.
Overall, the macroeconomic data is mixed. Structural problems of the external imbalance of the British economy deepened, but consumption is not yet affected by the fear associated with the consequences of Brexit. In the medium term, the pound should continue to be under pressure, but if further data on consumption will not differ from previous readings, it is possible to expect a slight rebound on the pound.
Further strengthening of the zloty.
The leading foreign currencies are 1-2 złoty cents below levels from yesterday morning. The exception is the pound. The global sterling slide, combined with further appreciation of the zloty, pushed the British currency below 5.00 level.
Still, there is a positive trend on other emerging market currencies. Both the forint and Turkish lira gained some value. Also, the ruble and the Mexican peso are stronger, although in the case of the latter two currencies, it is a result of the oil market rather than a part of the large inflow of capital to emerging economies. The rest of the day should not bring major changes, and it is probable that the positive trend for zloty will continue.
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