The sterling’s week was dominated by the anticipation and arrival of the Bank of England’s Monetary Policy Committee (MPC) announcement on interest rates. The MPC voted 7-2 to raise the interest rate to 0.5%. The increase was widely anticipated, along with the result of the vote. During the hours before the announcement on Thursday, the pound fell 1.18% against the euro and 0.75% against the US dollar; it seems that the increase had already been priced into the pound and there were no more gains to be had at the confirmation. Earlier in the week, the pound had been boosted by signs that the Brexit process may be accelerated, putting an end to the current uncertainty. The EU’s chief negotiator Michel Barnier suggested that they were pressing the timeline as much as possible. The UK’s primary representative in the negotiations, David Davis, conceded to the House of Lords EU committee that “the withdrawal agreement on balance will probably favour the union in terms of the things like money and so on.” Despite the lack of a positive outlook here, the honesty and direct approach meant that pound wasn’t unduly harmed by the statement. Opposition minister Kier Starmer found an unlikely ally in Jacob Rees-Mogg when calling for the release of the government’s impact papers regarding Brexit, the motion gained support on both sides of the house and Davis will be under considerable pressure.
It has not been the best week for the euro. The European Central Bank did just as the market expected, halving the scale of its monthly asset purchases to €30bn from January but there were no signs of when QE might end, causing a slight dip as investors assumed this meant it may go on longer than previously assumed. On Wednesday, the pound rose against the euro in anticipation of a UK rate rise and the euro also lost cents off the dollar early in the week. Figures released on Monday showed Spain’s gross domestic product expanding by a provisional 0.8% in the third quarter and France reported 0.5% growth in GDP, a figure which the Eurozone as a whole is expected to deliver for Q3 performance.
The US dollar started the week on a high, gaining against the euro and the pound on the back of expectations of the announcement of the new Fed chair and a hope for progress on the budget bill. The Mueller investigation into Russian collusion handed down its first indictments this week but investors were more concerned about the phased approach to tax cuts, which had boosted the greenback. The nomination of Jerome Powell as Janet Yellen’s replacement as Fed Chair didn’t cause much surprise; though Yellen will be missed, the Republican Powell has served on the board of the Federal Bank since 2012 and is seen as a “business as usual” figure who will take a similar approach to his predecessor in gradually raising interest rates.
The Canadian dollar did not have a good week and even the appearance of Superman Trudeau on Hallowe’en couldn’t break through the numbers. GDP contracted by -0.1% on the month, instead of growing as economists had predicted. Investors were unmoved by the Bank of Canada governor Stephen Poloz’ cautious tone, largely because it was what they had expected.
The best news this week came from Down Under. The Australian dollar surged against the pound after the rate hike from the Bank of England sent sterling lower and New Zealand released positive stats showing that the rate of employment was down from -4.8% to -4.6%. This boosted the kiwi dollar, which has recently been stuck in the midst of political uncertainty following the election campaign and its outcome of a new, untested coalition.
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