Sterling
Having recently experienced a rare fortnight of gains, the Pound found itself depreciating across the board again yesterday as ‘Brexit’ concerns were brought back to the fore. A supposed leaked memo – though not recognised by Prime Minister Theresa May – took the wind out of Sterling’s sails by suggesting that Britain currently has no ‘Brexit’ plan.
The document, obtained by The Times, claims that PM May has no overall exit strategy and suggests that it could take an extra six months for government ministers to agree on an overall plan for leaving the EU. The disconcerting claims underscored the economic uncertainty surrounding ‘Brexit’ and reminded traders that the risks are still very high. Markets were also concerned by elements of the memo suggesting that PM May’s priority was survival and holding the Conservative party together, rather than business or the future of the economy.
Euro
The Pound to Euro exchange rate softened yesterday as UK sentiment was dented by a concerning leaked ‘Brexit’ memo suggesting the UK government has no overall exit plan.
UK data showed that British inflation slid unexpectedly from 1.0% to 0.9% in October. However, as Bank of England Governor Mark Carney asserted later in the day, the impact of Sterling’s -20% depreciation is liable to drive consumer prices above the bank’s 2.0% target by the middle of next year. Eurozone data showed that the currency bloc grew at a quarterly rate of 0.3% in Q3, despite a surprise slowdown in German GDP from 0.4% to 0.2%.
US Dollar
‘Cable’ tumbled by around half a cent yesterday as political anxieties surrounding the UK government’s perceived lack of ‘Brexit’ strategy weighed heavily on demand for Sterling.
Across the pond in the United States data showed that retail sales volumes accelerated 0.8% in October, beating forecasts of 0.6%. The positive data release helped drive Federal Reserve rate hike bets to suggest a 92% chance of monetary tightening in December.
Analysts warned, however, that the robust data, alongside low levels of unemployment and other sturdy economic indicators, suggests that there is no need for an injection of fiscal stimulus at this juncture. Evidence suggests that the impact of fiscal stimulus is smaller when the economy is running close to full employment – and that poorly timed policies can even add instability by driving short-term inflation spikes that precede deeper recessions.
Canadian Dollar
Sterling declined by around two cents versus the Canadian Dollar yesterday as renewed OPEC output cut hopes combined with negative ‘Brexit’ sentiment to send GBP/CAD reeling.
Hopes that this month’s OPEC meeting would yield a deal to curb global output and drive oil prices higher stoked demand for the Canadian Dollar yesterday. Oil rallied over 4% as optimism surrounding the deal grew. However, sentiment has risen and fallen like a yo-yo over the past few months, so there is little reason to believe that yesterday’s positive shift in confidence will be the last stage of oil price – and by extension, Canadian Dollar – volatility.
Australian Dollar
The Pound to Australian Dollar exchange rate slid by around half a cent yesterday as UK economic sentiment suffered at the hands of a leaked ‘Brexit’ memo.
Today’s UK data is anticipated to show that unemployment remained at a decade low of 4.9% in September, while wage growth is tipped to come in positively at 2.4%. However, it may be difficult for Sterling to catch a bid on the figures, because forecasters expect certain British economic indicators to weaken significantly over the next two years in the run-up to ‘Brexit’.
New Zealand Dollar
Sterling softened slightly against the New Zealand Dollar yesterday as fears that a disorganised Tory party could put self-preservation ahead of economic interests in its ‘Brexit’ negotiations were stoked by a purported leaked memo.
Data Released
09:30 GBP ILO Unemployment Rate (3M) (SEP) Medium 4.9%
09:30 GBP Average Weekly Earnings (3M/YoY) (SEP) Medium 2.4%
14:15 USD Industrial Production (OCT) Medium 0.2%