The Daily Mail recently reported that this year, B&Q supermarkets are offering a hybrid “fake-n-fir” Christmas tree, half plastic and half natural, for £45. Why? Apparently the argument over having one or the other is a "top cause" of matrimonial strife. There was no such argument over sterling yesterday.
Just about everyone agreed that the pound was a sell. It began to head lower as London opened for business, with the Bank of England Governor Mark Carney introduced the results of the latest stress tests on UK banks. Whilst all passed the tests, Mr Carney warned they may have to put aside a further £10bn in reserves. That would be akin to monetary tightening, possibly reducing the need for higher interest rates.
Sterling took a second hit from the UK manufacturing sector Purchasing Managers' Index, which was two and a half points lower on the month at 52.7. Although the number was not far short of Germany's 52.9 or Euroland's 52.8, it was lower than investors had been expecting, adding to the pound's burden. Sterling ended up sharing bottom place, falling by a third of a US cent and three quarters of a euro cent.
With the implementation of both potential ECB stimulus and Fed rate hikes now appearing increasingly likely – probably in December – the euro was on course to depreciate by two cents against sterling. That was until Mark Carney announced that UK interest rates will not increase until at least Spring 2017. This may serve to soften the single currencies losses in the short-term, but could not disguise that expectation for rates to move upwards in the UK is still more positive than the Eurozone.
A cocktail of strong UK employment data, Portuguese political discord and a postponed Greek bailout payment added to the euro’s interest rate hangover, as it suffered further losses against sterling. Euroland economic data did little to numb the pain. The first estimates of third quarter growth in France and Germany were in line with forecasts at 0.3%.
Worse than expected GDP data, released by the Eurostat agency, revealed that the Eurozone grew by 0.3% between July and September. This was below the 0.4% expected by analysts and meant the region would grow by an unexceptional 1.6 % over the next 12 months. The slight slowdown in growth was accentuated by the stalling economic performance of Germany – its largest economy – which recorded an identical GDP figure during this period.
Expectation of further quantitative easing continues to weigh on the euro, causing it to weaken against sterling, bringing us closer to the nine year highs seen in the summer. Even the release of the latest UK GDP data could not put sterling off its stride. Usually a key market mover, the expected figure of 0.5% had little impact.
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