FX round-up: Sterling bears may yet see Goldilocks deprecation

Sterling bears may yet find reason for cheer if the currency's so far non-fairytale story turns out to be one of Goldilocks deprecation -- where its its fall is big enough to benefit exports but not quite enough to boost inflation sharply.

At about 17:05 BST, sterling was up 0.29% to fetch $1.2945, and was up 0.47% to €1.1724. The dollar-spot index was up 0.12% to $96.445. The UK issue gained on most commodity currencies.

"The fall in the pound since the EU vote has been widely presented as a negative development," said Capital Economics, likening it to a Brexit fall-out gauge and harbinger of economic woe.

"But ... we think the pound's fall could even be described as a Goldilocks deprecation – big enough to have at least some beneficial effect on exports but not so big as to push inflation up too sharply," the somewhat optimistic outfit said.

Sterling has endured a torrid time this week and last with global traders scattering for the safe-havens of gold, bonds and defensive currencies such as the yen and Swiss franc.

At 17:05 BST, gold was down 0.62% to $1,353.6 an ounce, while UK 10-year gilt yields had tightened 4 basis points to 0.73%.

This has also proved a boon for commodity-backed issues such as the aussie, kiwi, loonie and rand.

"Indeed, GBP/USD has spent all week at levels not seen since 1985 as markets have almost fully priced in a 25 basis point base rate cut by September," said JC Rathbone Associates.

Some are even tentatively looking to such a loosening at next week's Bank of England policymakers' meeting.

"Quite what would be gained from another small cut in rates is a moot point," said JC Rathbone, but others were wary of potential for a cut as large as 50 basis points, which they say could further hurt sterling.

"In truth, it is too soon to tell. Much depends on who becomes the next Prime Minister and how skilfully trade negotiations with the EU and wider world can be negotiated," said JC Rathone.

Against this backcloth, the US non-farm payrolls number for June stormed in at 287,000 with last month’s already poor figures revised down to 11,000.

This data is important, not just for the big moves contained but rather for its potential influence on US Federal Reserve monetary policy going forward.

"We are likely to see the Fed comment on the strength of these figures in this month's Federal Open Market Committee meeting," said Ana Thaker, market economist at PhillipCapital UK.

"But it is unlikely to be a reason for them to bring rate hikes forwards with inflation and global risks persisting," she said.

The dollar improved against the euro, rising 0.19% to €0.9057 by 17:05 BST, but slipped notably lower against the aussie, kiwi and rand as it eked out gains on the loonie.

"Overall, today’s NFP results have provided the Dollar bulls with a lifeline and bolstered confidence towards the stability of the US economy," said FXTM research analyst Lukman Otunuga.

"The Federal Reserve could be one of the first central banks to break away from the hypnotic spell of global anxieties by raising US interest rates in the future," he said.