London Pushes for Bespoke Brexit Deal, Pound (GBP) Exchange Rates Trade Slightly Higher
Lacking much in the form of UK-related data today Pound (GBP) exchange rates were very much at the mercy of recent Brexit-related news.
With negotiations beginning once again this week the market focus has been on whether the UK will remain in the customs union or not. The ongoing impasse is being watched closely by traders.
UK Prime Minister Theresa May has asserted that the UK will not be a member of either ‘the’ or ‘a’ customs union, instead seeking a ‘highly streamlined customs agreement’ that would allow Downing Street to seek trade deals with other nations during the transition.
UK Brexit Secretary David Davis intoned:
‘We want a comprehensive free trade agreement and we want a customs agreement and to make that as frictionless as possible … while still giving ourselves the opportunity to make free trade deals with the rest of the world.’
The EU, however, seems adamant that this is not on offer.
In other news the UK’s top financial regulator, Andrew Bailey, has insisted that there is nothing stopping Britain and the EU from settling on a mutually beneficial Brexit agreement for the financial services sector – a prospect that would ensure financial services trade continues for as long as possible.
This bolstered the Pound – with any hope for ongoing access for London’s financial services likely to increase optimism over the UK’s future economic prospects.
GBP/EUR Exchange Rate Fluctuates as German Factory Orders, Construction, Beat Forecasts
The Pound Euro (GBP/EUR) exchange rate traded within a narrow band on Tuesday morning with Sterling’s rise mostly negated by a run of upbeat German ecostats.
Germany saw an unexpected rise in industrial orders and accelerated growth within its construction sector, with German factory orders rising 3.8% month-on-month in December, considerably up from the consensus of a 0.7% gain, and smashing the previous -0.1% fall in November.
IHS Markit’s January German construction PMI similarly rose, this time from 53.7 in December to 59.8, marking the steepest increase in factory orders since August and further cementing Germany’s position in the bloc as an industrial powerhouse.
In other news, European Central Bank (ECB) President Mario Draghi spoke to the European Parliament in Strasbourg yesterday, asserting that inflation will eventually reach target levels but also asking for caution citing ‘new headwinds’ that could have implications for the medium-term outlook for price stability.
Whilst his message is nothing new, this cautious outlook may have limited the upward potential of the Euro.
Pound US Dollar (GBP/USD) Exchange Rate Capitalises on Major Dow Jones Slump
Sterling is higher against the US Dollar (GBP/USD) this morning after a major stock plunge in the US.
The Dow Jones stock index dropped by almost 1200 points yesterday, with investors showing concern over increasing inflation and the prospect of faster-than-expected rate hikes from the US Federal Reserve.
Mona Mahajan, Investment Strategist at Allianz Global Investors explained:
‘When you have rates moving upwards, typically what happens it that financial conditions tighten, things like bank lending, mortgage lending start to slow and then the economy is at risk of a potential downturn.’
Nevertheless, the extremely upbeat run of US employment figures and yesterday’s ISM readings bode well for the future of the US economy.
Pound Canadian Dollar (GBP/CAD) Exchange Rate Rises as Crude Oil Prices Plummet
The Pound Canadian Dollar (GBP/CAD) exchange rate ascended on Tuesday, as markets capitalised on plummeting crude oil prices.
Oil prices fell back suddenly as the broader turmoil in the financial system bled into the oil market.
The stronger-than-expected US jobs and wage growth fuelled speculation that the US Fed would tighten interest rates faster than previously thought; something that sent the US Dollar higher and caused chaos in equity markets.
The stock market remains very much in the red as of Tuesday morning – despite a small recovery – and if it continues to struggle then the selloff of Brent and WTI may continue.
This could extend the Pound’s lead against the Canadian Dollar.
Pound Australian Dollar (GBP/AUD) Exchange Rate Up on Dovish RBA
The Reserve Bank of Australia (RBA) left their official cash rate on hold at a record low of 1.5% at their first meeting of the year, citing ongoing concerns regarding poor household consumption and below-target inflation.
Consumer prices in Australia rose by 1.9% though the year to the December quarter of 2017, up from the previous 1.8% rise but below the market forecast of 2%.
This was below the central bank’s target of 2% – an ongoing cause for concern for the RBA.
Philip Lowe, Governor of the RBA, shared his thoughts on the rate decision:
‘The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.’
The Pound Australian Dollar (GBP/AUD) exchange rate rallied as a result.
GBP/NZD Exchange Rate Tumbles Ahead of Global Dairy Trade Price Auction
Whilst the Pound (GBP) climbed against a handful of the majors, it toppled against the New Zealand Dollar (NZD), falling as markets prepared for the imminent global dairy trade price auction.
The previous auction saw a significant surge in dairy prices, with the commodity bolstered by a massive drop in supply prompted by an ongoing period of drought.
Weaker milk production is expected to have extended in New Zealand, something that markets are expecting to prolong high prices for the commodity.
In other news New Zealand’s employment figures are due later today, with the unemployment rate expected to rise from 4.6% to 4.7%. This could negate any positive gains from any dairy price rise.
Nonetheless, the GBP/NZD exchange rate remains bearish in the meantime.