Pound Leaps Higher as BoE Policymaker Talks Down Negative Rates

Australian Dollar (AUD) Lifted by Improved Chinese Industrial Profits

The Australian Dollar (AUD) pushed higher at the start of the week thanks to the positive nature of the latest Chinese industrial profit report.

Chinese factory earnings saw a solid increase of 19.1% on the year, marking a fourth consecutive month of growth in profits. This suggests that the world’s second-largest economy continued to recover from the impact of the Covid-19 lockdown, bolstering confidence in the wider global outlook. As the Australian Dollar commonly functions as a market proxy for the health of the Chinese economy, AUD exchange rates gained ground in the wake of the data.

As long as a sense of optimism continues to grip markets this should keep the Australian Dollar on a positive footing.

Pound (GBP) Rallies Sharply as BoE Policymaker Dismisses Negative Rates

The Pound (GBP) surged during Monday’s European session in the wake of comments from Bank of England (BoE) deputy governor Dave Ramsden.

As Ramsden talked down the prospect of the BoE implementing negative interest rates, this gave GBP exchange rates a solid boost across the board. These comments helped to offset fellow policymaker Silvana Tenreyro’s apparent support for the possibility of negative rates. A growing sense of optimism ahead of the last round of formal UK-EU talks added to the bullish mood of the Pound.

With forecasts pointing towards an uptick in UK mortgage approvals in August, there could be further gains in store for GBP exchange rates tonight. Meanwhile, any headlines emerging from the latest UK-EU negotiations will also drive GBP movement.

Euro (EUR) Under Pressure as Lagarde Calls for Fiscal Support

The Euro (EUR) saw limited support overnight after European Central Bank (ECB) President Christine Lagarde warned of the need for further fiscal support.

Lagarde highlighted the threat that the Covid-19 pandemic still poses to the Eurozone economy, calling for governments to offer additional support in order to safeguard loans and jobs. This dovish message naturally limited the appeal of the single currency, especially in the face of a general improvement in market sentiment.

If the German consumer price index delivers a negative reading on the year in September, this could add to the bearish mood, given how far inflation continues to trail behind the ECB’s 2% target.

US Dollar (USD) Softens Even as Dallas Manufacturing Index Improves

The US Dollar (USD) failed to capitalise on an improved Dallas Fed manufacturing index as safe-haven demand faded.

Although the index unexpectedly picked up from 8 to 13.6 in September, pointing towards greater resilience within the manufacturing sector, USD exchange rates faltered. With the Chinese economy showing fresh signs of recovery, a renewed sense of market risk appetite left the US Dollar on the back foot as it ceded some of its recent run of gains.

A widening of the advance goods trade deficit may expose the US Dollar to additional selling pressure tonight ahead of the first televised US presidential debate. At the same time, any shifts in risk appetite would drive volatility in USD.

Canadian Dollar (CAD) Remains Under Pressure Thanks to Oil Worries

The Canadian Dollar (CAD) struggled to find any particular traction on Monday, even as market sentiment largely improved.

With oil markets turning jittery in response to lingering anxiety over global supply and demand issues, CAD exchange rates remained on the back foot. The commodity-correlated Canadian Dollar failed to shore up despite higher levels of Chinese industrial profits potentially translating into greater demand for crude oil.

Support for CAD exchange rates could weaken further on the back of a sharp contraction in the latest Canadian producer price index reading.

New Zealand Dollar (NZD) Slips in spite of Risk Appetite

The New Zealand Dollar (NZD) was unable to benefit from an improvement in market sentiment as it lost its stronger footing.

As NZD exchange rates had largely bucked the trend of risk aversion last week, this left the ‘Kiwi’ exposed to selling pressure as investors turned optimistic once again. In the absence of any supportive domestic data releases, there was little to prevent the New Zealand Dollar shedding ground.

Even so, an underwhelming performance from the latest US data may still offer NZD exchange rates some support in the near term.

Data Releases

18:30 GBP Mortgage Approvals (Aug) 71,000
22:00 EUR Germany Consumer Price Index (Sep) -0.1%
22:30 CAD Producer Price Index (Aug) -2.3%
22:30 USD Advance Goods Trade Balance (Aug) $-81 billion

Louisa Heath