The Pound weakened yesterday as the dust continued to settle from the Federal Reserve’s latest monetary policy announcement. The US central bank opted to leave rates on hold in September last Thursday and the dovish tone in Chairwoman Janet Yellen’s accompanying press conference caused investors to push back their Fed rate hike bets from three to five months.

The Pound initially rallied against the ‘Greenback’ in response to this shift in sentiment, however, as US hike expectations were delayed so were UK rate rise bets. This is because the general consensus is that the Bank of England will not begin tightening monetary policy until after the Fed. The current market pricing suggests that the BoE will remain on the sidelines for at least another year.

Sterling weakened across the board yesterday in reaction to soft UK sentiment but there is potential for a rebound in demand for the Pound if speculative investors alter their positions again over the next few weeks. Indeed, BoE Governor Mark Carney stated just last week that he expects UK rates to rise in the second quarter of next year.

Euro

The Pound to Euro exchange rate shrunk by around -150 pips yesterday as British sentiment waned. However, Eurozone manufacturing data slowed from 52.3 to 52.0 and service sector output cooled from 54.4 to 53.9, which suggested that the private sector was beginning to slow even before the Volkswagen emissions scandal. With the German car making giant facing fines of up to $20 billion it is entirely likely that manufacturing production will start to slump over the next few months. VW has shed around a third of its market value so far this week and CEO Martin Winkerton has stepped down.

Speaking to the European Parliament, European Central Bank Chief Mario Draghi confirmed that officials at the bank were considering loosening monetary policy further by altering its quantitative easing scheme – either by purchasing more quantities of European bonds or extending the QE scheme for longer. However, Draghi asserted that the current pace of monetary easing was appropriate for now and suggested that his team of analysts would wait to see how much of an impact the slowdown in emerging markets would have on European price pressures. The remarks bolstered the appeal of the single currency.

US Dollar

Despite data showing that US factory output remained at its slowest pace for two years during September the Pound fell to a two-week low against the US Dollar yesterday as a shift in BoE rate hike bets softened demand for Sterling.

Markit Economics reported that their US manufacturing PMI remained at 53.0 during September, suggesting that flagging demand in major export markets, the strong domestic currency and a slowdown in energy markets due to plunging commodity prices were impacting the performance of the world’s largest economy. However, the soft PMI report was not enough to prevent GBP/USD falling by around -100 pips.

Canadian Dollar

Softening sentiment towards Sterling financial markets got GBP/CAD off to a bad start yesterday but the Pound clawed back some of its losses during the afternoon following a report into the Canadian retail sector.

Statistics Canada reported that Canadian retail sales volumes rose from a negatively adjusted 0.4% to 0.5%, which undershot analysts’ expectations of 0.7%. The majority of the sales were witnessed in the automobile and clothing sectors.

Australian Dollar

The Pound rose by around half a cent against the Australian Dollar yesterday as Chinese growth concerns weighed over the high-risk Antipodean currency.

The latest Chinese PMI report showed that manufacturing activity plummeted to a six-year low of 47.0 in September. At three points below the 50.0 mark that separates growth from contraction the worrying result was seen to suggest that the burgeoning Chinese crisis could prompt policymakers at the Reserve Bank of Australia to reconsider the recent decision to stop slashing interest rates.

New Zealand Dollar

The Pound initially rallied against the New Zealand Dollar yesterday on news of weaker-than-anticipated factory output in China, however, a downtick in global sentiment towards Sterling prevented the UK currency from holding onto its gains. And GBP/NZD fell by around -200 pips during the evening in response to another uptick in dairy prices.