GBP Exchange Rates Bolstered as May Urged to Secure ‘Norway-Style’ Brexit Trade Deal
Pound (GBP) exchange rates hit the ground running this Monday, bolstered by news that various cabinet ministers who backed ‘remain’ are pushing UK Prime Minister Theresa May to explore a ‘Norway-style’ Brexit trading arrangement.
Downing Street has previously stated that Britain would not pay for access to the EU single market, however the pro-European contingency within May’s cabinet have asserted that the cash could be used to facilitate a more agreeable ‘bespoke’ deal.
This news comes after reports that remarks were made by Spanish and Dutch finance ministers in which they were calling for a ‘softer’ Brexit – an attitude that seemingly contradicted the idea of the bloc as a united front on Brexit negotiation policy.
Beyond this, the idea that the UK might be moving towards a ‘soft’ Brexit bolstered the Pound, with markets keen to move away from the possibility of a cliff-edge divorce.
In a notable data release today the UK’s IHS Markit household finance index revealed a sharp deterioration, with household finances worsening at their steepest rate since September and inflation expectations hitting their highest levels in almost four years – news that does not bode well for the medium-term outlook for the Pound.
GBP/EUR Exchange Rate Inches Ahead on Sparse Data Day
The Pound Euro (GBP/EUR) exchange rate inched ahead on Monday, with a lack of notable UK and EU ecostats leaving markets to focus on the week ahead.
Tuesday will see the release of various German and Eurozone ZEW economic surveys – a monthly snapshot of financial experts that provides a medium-term forecast into the bloc’s economic situation.
Markets currently expect the Eurozone reading to climb from a score of 29 to 32 in January, with the German reading similarly expected to rise from 17.4 to 19.
This eventuality could put the GBP/EUR exchange rate under increased pressure.
It should also be noted, however, that European Central Bank (ECB) President Mario Draghi and Economist Benoît Cœuré are both expected to attend the Eurogroup meeting today. Whilst markets are not expecting anything massively significant in the way of soundbites, the possibility remains that Draghi could discuss the state of the Eurozone’s economy, or indeed Brexit.
He will mostly likely hold off on monetary policy talk, especially with the ECB meeting looming.
GBP/USD Exchange Rate Climbs as US Struggles with Government Shutdown
The Pound US Dollar (GBP/USD) exchange rate traded higher on Monday after major political parties in the United States failed to reach a deal that would have averted the government shutdown.
The US government essentially failed to meet its deadline for agreement on a spending bill, with Democrats refusing to back the temporary deal because of concerns regarding immigration reform.
A Sunday session within the Senate also failed to result in a successful compromise, extending the shutdown and pushing investor concern for the state of the US Dollar slightly higher.
In other news, the World Economic Forum 2018 is kicking off in Switzerland today – an annual four-day event that attracts leaders from the realms of politics, business and economics.
Headline guests this year include US President Donald Trump, as well as French President Emmanuel Macron and Theresa May.
Any soundbites from May or Trump could knock the GBP/USD exchange rate up or down, particularly if an upbeat tone is taken regarding the Brexit negotiation progress.
GBP/CAD Exchange Rate Extends Lead on Bank of Canada NAFTA Concerns
The Pound Canadian Dollar (GBP/CAD) exchange rate extended its lead on Monday as markets continued to digest last week’s cautious statement from the Bank of Canada (BoC).
Whilst the central bank did raise interest rates as expected on Wednesday (citing strong job growth and robust inflation), the issue of a possible NAFTA termination weighed heavily on the accompanying statement.
Bank Governor Stephen Poloz shared his reasoning on the decision in the press conference:
‘We didn’t walk into this as if it was a no-brainer, that it was time to move rates. There was a good debate around that. It’s not that we were arguing but we were debating the pros and cons… the big cloud over the forecast, as well as our discussion, is NAFTA.’
Looking ahead, markets will be keen to assess Friday’s release of Canadian inflation figures, with a drop forecast from 2.1% to 1.9% in the headline year-on-year reading.
GBP/AUD Exchange Rate Strong despite Weaker USD
The Pound Australian Dollar (GBP/AUD) exchange rate maintained its lead on Monday morning, with the ‘Aussie’ Dollar failing to capitalise on the weakness of its US counterpart.
Whilst the US Dollar has opened a weaker due to the government shutdown, some economists have asserted that the situation in the US could have only minor negative implications on global economic growth – an outlook that has slightly curbed risk appetite.
Looking ahead, markets will be keen to assess tonight’s ANZ Roy Morgan weekly consumer confidence index release, as well as Tuesday’s Westpac leading index – both events that could put GBP/AUD under pressure.
GBP/NZD Exchange Rate on Solid Form Ahead of Wednesday’s NZ Inflation Data
The Pound New Zealand Dollar (GBP/NZD) exchange rate held strong on Monday as investors monitored the US government shutdown.
Much like the situation with the Australian Dollar, NZD investors are predominantly waiting for developments in Washington before making significant moves.
The main release this week for the New Zealand Dollar will be Wednesday’s January inflation figures, with the headline year-on-year inflation reading expected to stay unchanged at 1.9%.
The monthly reading is expected to slip from 0.5% to 0.4%, however, with price pressures not liable to push the Reserve Bank of New Zealand (RBNZ) any closer towards adopting more hawkish monetary policy measures.
Managing Director of BK Asset Management Kathy Lien shared this sentiment, stating:
‘…with manufacturing activity slowing and price pressures likely to be hit by lower food and dairy prices in the fourth quarter, the New Zealand Dollar is at greatest risk for a deep correction.’
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.
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