Daily Currency Update
Sterling experienced a reversal of fortunes on Tuesday as the UK's latest batch of employment figures impressed. Unemployment declined to 5.5% but the increase in average earnings was what really got investors excited and helped drive the Pound higher against both the Euro and US Dollar. The British currency was also supported as Bank of England Governor Mark Carney intimated that most policymakers feel comfortable with the idea of increasing interest rates in the second quarter of next year, three months earlier than previously priced into the market. If today's UK retail sales report also delivers a positive surprise the Pound's upward momentum may continue. However, slowing consumer price gains could weigh on Sterling ahead of the FOMC announcement.
As the European Central Bank's (ECB) previous hints about expanding quantitative easing have seen the possibility of further stimulus priced into the market to a certain extent, Wednesday's below-forecast Consumer Price Index for the Eurozone had a muted impact on Euro trading. The decline recorded in the EUR/GBP pairing was largely the result of the Pound's jobs data-inspired bullish run, but the EUR/USD exchange rate gained after US core CPI fell short of the mark. While today's Economic Bulletin from the ECB and the currency bloc's Construction Output numbers could influence the direction taken by the Euro in the hours ahead, investors are likely to maintain a cautious approach to trading ahead of the week's main event – the Fed's interest rate decision.
Although the core measure of US inflation didn't rise as anticipated in August, the perception that the result was unlikely to materially impact tonight's rate decision left the US Dollar little changed following the report's release. If the Fed leaves rates on hold and intimates that an adjustment isn't likely to take place until December the US Dollar may fall. However, if hints of a hike taking place in October are issued (keeping the prospect of two revisions in 2015 alive) we could see broad-based gains for the 'Greenback'.
With the Chinese stock market rallying by 5% before the close of trade, the commodity-correlated Australian Dollar posted gains against a number of its rivals during the European session. However, the 'Aussie' reversed these gains overnight as focus turned to the US and tonight's potentially market-shifting interest rate announcement. A rate increase from the Fed could send the Australian Dollar spiralling lower.
New Zealand Dollar
As New Zealand's second quarter growth data fell short of expectations, the New Zealand Dollar softened over the course of the Australasian session. Economists had expected the nation to post quarterly growth of 0.6% in the three months through June, so the figure of 0.4% was a disappointment. On an annual basis, growth slowed from 2.7% to 2.4%.
Spiking crude oil prices gave the Canadian Dollar a boost on Wednesday, with the 6% increase in the value of Canada's key commodity counteracting the positive impact of the UK's jobs data on the GBP/CAD pairing. Canadian Manufacturing Shipments also rose by 1.7% on the month in July, smashing the 1.1% forecast.
South African Rand
After gaining in response to developments in the Chinese stock market, the Rand clung to its advance against the US Dollar on Thursday. The Rand managed to hold a stronger position against its North American counterpart in spite of domestic retail sales data falling short of forecasts yesterday, showing sales growth of just 0.1% on the month in July rather than the 0.7% forecast. However, with the previous month's numbers being positively revised, the annual figure of 3.3% beat the 3.08% projection. Today's FOMC decision is likely to spark Rand volatility.