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Sterling Hold Steady as Rate Hikes Loom Large

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Sterling Hold Steady as Rate Hikes Loom Large

Currency markets experienced volatility on Friday on the heels of the ECB interest rate cut on Thursday and Friday’s debt downgrade by S&P of France’s credit. Chinese trade figures came in better than expected, while Germany’s trade surplus jumped to a record high. Global yields continue to decline but strength in the UK continues to keep the pound elevated.

Standard & Poor’s Ratings Services cut France’s debt rating by one notch to AA, criticizing President Francois Hollande’s strategy for repairing the country’s economy. S&P altered its outlook for negative to stable which means there is less than a 33% chance of an additional downgrade or upgrade.

China’s trade figures came in above consensus as exports grew 5.6% year over year and imports increased to 7.6%, while the trade surplus more than doubled on month to $31.1 billion. China’s export numbers suggests some improvement in global demand.

The German trade surplus jumped 19% to record high. Germany’s trade surplus increased 19% on month to a record high of 18.8 billion in September and exceeded consensus of 15.5 billion. Export growth accelerated to 1.7% and also topped forecasts, despite a relatively high Euro.

The BOE meeting offered no surprises whatsoever, as the MPC kept interest rates unchanged. On Friday, the UK reported September trade and construction, both coming in worse than expected. Interest rates continue to imply an increase in 2014 which could generate headwinds for the housing sector if not rectified by the BoE. If rate expectations move higher or sterling continues to firm, Governor Carney might push back next week using rhetoric.

Sterling remained robust and held support near the 10-day moving average at 1.6045. Momentum is flattening with the MACD printing near the zero index level. The RSI (relative strength index) is printing near 52 which is in the middle of the neutral range.

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