Brexit Press Conference Imminent – Pound (GBP) Exchange Rates Surge
Sterling (GBP) hit the ground running this week, rallying against the majors as markets prepared for the possibility that sufficient progress had finally been achieved on the Brexit transition front.
UK Brexit Secretary David Davis and EU Chief Negotiator Michel Barnier have both spent the weekend in a series of extensive talks, with discussions primarily aimed at resolving the issue of the Irish border.
Reports suggest that good progress has been made, and now both are expected to attend a press conference titled ‘European Commission: Press Conference on Negotiations Article 50 with the United Kingdom’.
Markets are hoping that they will announce a deal has been reached in time for the EU summit later this week.
There is no big data for the UK today, but markets will be very interested in tomorrow’s UK inflation readings as these could make or break the case for a Bank of England (BoE) rate hike in May.
GBP/EUR Exchange Rate Rallies – EU Trade Surplus Shrinks
Sterling rallied against the Euro on Monday morning, supported by optimism on the Brexit transition front but also by a soft trade surplus reading from the bloc.
According to Eurostat, the Eurozone’s trade surplus fell to €19.9b in January, down from the previous print of €22.3b and below the market estimate of €23.2b.
This was a three-month low for the bloc’s trade reading, with exports declining by 0.7% and imports growing 1.1%.
What’s more, the Eurozone’s constriction output shrank by 2.2% in January, far below the forecast of a 0.7% rise.
This is not unusual for this time of year, but a severe contraction in France’s production construction did raise some eyebrows and assist in limiting the Euro.
GBP/USD Exchange Rate Climbs on Quiet US Data Day
This Monday is a quiet one for US data, though last week’s run of cabinet shifts within US President Donald Trump’s administration also didn’t give the ‘Greenback’ much in the form of support.
Sterling rallied against the US Dollar on the back of rumours that sufficient progress has now been made on key elements of the Brexit transition deal.
Volatility could increase as we approach Wednesday’s US Federal Open Market Committee (FOMC) rate decision, with markets still largely anticipating a rate hike from the US Federal Reserve.
The US economy is current picking up momentum, and Fed Chairman Jerome Powell and various regional Fed Presidents have all said that the bank could execute four rate hikes this year, rather than the initially proposed three.
Some have noted the weaker-than-expected US inflation and wage growth readings, and how they could push the bank away from adopting a hawkish stance, but others are concerned that holding off on a rate hike would risk the US Fed getting caught flat-footed.
We expect GBP/USD to come under severe pressure if the bank moves hawkishly.
GBP/CAD Exchange Rate Surges – Optimistic Outlook for the Week Ahead
Sterling performed solidly against the ‘Loonie’ on Monday, capitalising on diminishing market risk appetite and fresh Brexit optimism.
US President Donald Trump acknowledged that the US does, in fact, have a trade deficit with Canada last week, news that spooked some investors on the possibility that it could then be used as leverage in the NAFTA renewal negotiations.
Markets are also hesitant to buy too heavily into the Canadian Dollar (GBP/CAD) in light of a possible trade retaliation against the US by Canada, or the EU – an event that could then spark a global trade war.
GBP/AUD Exchange Rate Surges – Aussie RBA Meeting Minutes in the Spotlight
The Pound surged against the Australian Dollar (GBP/AUD) this morning, with the market outlook looking generally positive for this week.
Tuesday will see publication of the Reserve Bank of Australia’s (RBA) meeting minutes as well as a speech from RBA Assistant Governor Michele Bullock.
It is unlikely that the minutes will reveal a great deal of new information, however, with the core message from the central bank generally being one of cautious optimism, with a focus on inflation and economic growth.
Rising tensions in global trade relations could continue to hurt the ‘Aussie’ Dollar, though Thursday’s employment readings will likely take the cake in terms of significance.
A rise in unemployment could give GBP/AUD a little boost.
GBP/NZD Exchange Rate Trades Higher, New Zealand Services PMI Contracts
The ‘Kiwi’ Dollar struggled against the Pound on Monday, with the latest business NZ performance of services index in New Zealand contracting to 55 in February, down from the previous month’s 55.7.
This marked the third consecutive decrease in expansion, with the drop largely due to a dip in the activity/sale sub-index.
In slightly better news, however, there was an increase in new orders and business, supplier deliveries and stocks/inventories.
This gave the GBP/NZD exchange rate even more room to climb.
It should also be noted that this week is global dairy trade price index week, with the latest auction liable to guide direction on the New Zealand Dollar.
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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