Leaked Brexit Analysis Document Prompts Market Concern, GBP Exchange Rates Slide
The Pound (GBP) resumed its slide against a basket of the majors on Tuesday morning, encumbered by recent talk of a possible coup within the Conservative Party and this morning’s market reaction to a leaked Brexit impact assessment document.
The leaked government document asserted that Britain’s economy will be left worse off after Brexit, regardless of which deal is struck with Brussels.
The validity of this document was quickly called into question, however, with government sources asserting that the UK will not be worse off, and that the preferred avenue of a bespoke trade deal had not yet been analysed.
On the data front mortgage approvals in the UK fell to their weakest levels since January 2015, but consumer borrowing, a variable that the Bank of England (BoE) has been carefully watching, picked up pace for the first time in four months.
This has helped buoy the Pound somewhat, though its slide against a variety of other currencies has continued.
GBP/EUR Exchange Rate Slides, Eurozone GDP Growth Decelerates
The Pound Euro (GBP/EUR) exchange rate fell on Tuesday despite a small dip in the bloc’s overall GDP growth rate.
Gross domestic product (GDP) in the Euro area expanded at a rate of 2.7% in the fourth quarter of 2017 over the same quarter, previous year, missing the 2.8% expected and indeed the previous period’s 2.8% print.
The quarter-on-quarter reading printed at 0.6%, consistent with forecasts, but below the upwardly revised 0.7% expansion of the previous period.
Nonetheless, an expansion of 2.5% on the overall calendar year marked the most rapid rate of growth since 2007’s 3.4% increase, effectively demonstrating that the bloc continues to be in the midst of a broad cyclical expansion.
Because of this the GBP/EUR exchange rate remained in the Euro’s favour.
GBP/USD Exchange Rate Holds Steady Ahead of FOMC Rate Decision
The Pound US Dollar (GBP/USD) exchange rate held steady on Tuesday morning as the US Dollar’s rebound slowed.
Markets are currently awaiting a variety of significant events for the ‘Greenback’, with US consumer confidence readings for January due today. Employment readings and the highly anticipated US FOMC rate decision are due on Wednesday.
Fed Chair Janet Yellen will set interest rates for her last time tomorrow, before leaving in February to be replaced by the chosen successor, Jerome Powell.
The markets do not currently expect an interest rate hike this month, though further rate hikes are expected later this year.
Investors will nonetheless be keen to assess Yellen’s accompanying statement, as well as any comments she makes, with the positive performance of the US economy expected to keep things relatively upbeat.
In the meantime the markets remain slightly cautious.
GBP/CAD Exchange Rate Holds Ground as Crude Oil Falls
The Pound Canadian Dollar (GBP/CAD) exchange rate remained within a narrow band of trade on Tuesday as markets reacted to a second day of lower crude oil prices.
Crude oil took a dent along with many risk-correlated currencies on a strengthening US Dollar and rising US output.
Many analysts think the correction will be brief, however, with the primary concern being that inventories continue to shrink.
ABN Ambro Chief Energy Economist Hans Van Cleef shared this sentiment, stating:
‘I do have the feeling that market optimism pushed prices perhaps a little bit too high, but as long as inventories continue to decline, for me, personally, I’m more and more looking at a ‘buy-on-dips’ strategy, so I’m looking for a correction lower.’
Nonetheless, market demand for the commodity-correlated ‘Loonie’ continued to take a hit.
GBP/AUD Exchange Rate Climbs Ahead of AUS Inflation Data
Falling iron ore prices and the recent rebound in the US Dollar (USD) left the GBP/AUD exchange rate in the Pound’s favour on Tuesday morning, although the upcoming AUS inflation release and the US FOMC rate decision could change this.
On the data front the Australian NAB business confidence survey for January was released today, printing at 11, up from the previous period’s 7.
This survey, whilst giving an optimistic insight into the Australian economy, failed to give the ‘Aussie’ Dollar much purchase, with markets remaining far more concerned with the possibility that more US tariffs could prompt a trade war.
Wednesday’s Australian inflation release is expected to climb from 1.8% to 2.0%, year-on-year, whilst the quarter-on-quarter reading is forecast to inch up from 0.6% to 0.7%.
If this forecast proves accurate then the GBP/AUD exchange rate could come under renewed pressure.
GBP/NZD Exchange Rate Remains Soft on Upbeat NZ Trade Surplus
The Pound Sterling New Zealand Dollar (GBP/NZD) exchange rate remained soft on Tuesday morning with the ‘Kiwi’ Dollar held up by Monday’s NZ trade surplus report.
Official figures revealed that New Zealand’s monthly trade surplus hit its highest level in over two years, with December’s trade balance reading printing at NZ$640m, significantly above the expected NZ$-125m and the previous period’s NZ$-1233m.
Growing risk aversion, however, may have impeded the New Zealand Dollar’s lift from this news with the recent rally in the US Dollar (USD) negatively impacting the commodity currencies.
This week the US Dollar was touching three-year highs when valued against a basket of major currencies. The greenback’s traditional role as one of the safe-haven currencies is helped by a domestic economy that is largely immune to the threats of the coronavirus.
Last update: 22 Feb, 2020
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The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
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