Pound Staggers but Rebounds after Leaked Government Report Predicts Economic Hit from All Kinds of Brexit
The Pound started the day on the decline yesterday, after a report prepared for the Cabinet analysing the impact of different types of Brexit was leaked.
The document concluded that all forms of Brexit would have a negative impact upon the UK’s annual income, with a ‘no deal’ Brexit resulting in a -8% drop in economic growth and that even a soft Brexit retaining single market access would hurt the UK to the tune of -2% GDP.
However, the Pound was able to recover later as ministers downplayed the significance of the analysis, which notably did not include projections for the impact of Theresa May’s preferred ‘deep and special partnership’.
If markets aren’t distracted again by Brexit developments, last night’s surprise rise in the GfK consumer confidence index, which climbed from -13 to -9, could push Sterling higher as the session progresses.
GBP/EUR Struggles around Opening Levels after Solid Eurozone GDP Figures
The Euro was on buoyant form yesterday thanks to some strong economic data covering the currency bloc, although German inflation data disappointed.
French GDP accelerated unexpectedly year-on-year and, while Eurozone growth figures printed as expected, the third quarter growth data was revised 10 basis points higher both quarter-on-quarter and year-on-year.
However, German consumer prices declined by a worse than expected -0.7% in January, meaning year-on-year price growth was dragged down from 1.7% to 1.6%.
German unemployment data and Eurozone consumer price index figures for January are set for release today. Eurozone core consumer price growth is expected to have accelerated, which could boost the Euro by improving the monetary policy outlook.
Approach of Federal Reserve Monetary Policy Announcements Opens Door to GBP/USD Gains
Strong Eurozone growth data was pressuring the US Dollar lower yesterday, although markets were also staying away from USD due to the fact that today’s monetary policy announcements from the Federal Reserve were just around the corner.
January’s US consumer confidence index posted a larger than expected rise to 125.4 after December’s score was revised higher to 123.1, which did nothing to alter the long term monetary policy expectations.
The Federal Open Market Committee (FOMC) will announce its latest monetary policy decisions after the close of trading today. The US Dollar could therefore remain weak, although markets also have President Donald Trump’s State of the Union Address, delivered earlier this morning, to ponder.
Trump focused heavily on ‘America first’ policies, which will have done nothing to allay fears of international trade wars.
US Dollar Strength and Approach of Crude Oil Data Allows GBP/CAD to Gain
Strong demand for the Euro and the approach of today’s US monetary policy announcements was keeping market appetite for risk weak yesterday, which saw the Pound Sterling to Canadian Dollar exchange rate able to make solid gains in the afternoon.
US crude oil inventories data is also out today and the approach of this was weighing on oil prices and therefore the commodity correlated Canadian Dollar.
Canadian November GDP figures will be released today and the forecasts are for solid readings, so GBP/CAD could struggle to hold any gains.
Strong USD Cools Global Market Risk Appetite, GBP/AUD Surges Higher
The GBP/AUD exchange rate was able to rise around half a percent during the afternoon, in part thanks to US Dollar strength weighing on the Australian Dollar.
The ‘Aussie’ was also on soft form even though the latest NAB business confidence and conditions indices both showed a larger than expected rise in sentiment when they were released overnight.
Although the focus on the US Dollar today could create a window of opportunity for the Australian Dollar, the worse-than-expected growth in consumer prices during the fourth quarter of 2017, as revealed by this morning’s early releases, could keep AUD on the decline.
Surprise NZ Trade Surplus Slows Pace of GBP/NZD Advance
Cooling risk appetite allowed the GBP/NZD exchange rate to edge higher yesterday, but the New Zealand Dollar was able to clip the Pound’s wings thanks to Monday night’s impressive trade data.
New Zealand was expected to report a trade deficit of -NZ$125 million - down around -NZ$1 billion on November’s reading - but the nation instead racked up an impressive NZ$640 million trade surplus.