Sterling
Demand for the Pound softened somewhat at the start of this week’s session, with investors once again focussing their attentions on Brexit and, more specifically, the uncertainty it creates for businesses. Sentiment was not helped by reports suggesting that European negotiators would not agree to any kind of transitional deal until after Britain has settled the terms of its divorce settlement from the EU.
The single market hokey-cokey continued during the afternoon when a spokesperson from 10 Downing Street said the government was committed to getting “a deal that works for the UK as a whole”. In what appeared to be an indirect response to Scottish First Minister Nicola Sturgeon’s call for a second referendum if Scotland was denied access to the single market, PM May’s spokesperson specifically mentioned that Britain’s post-Brexit deal would work for Scotland. This statement allowed the Pound to drift a little higher as investors perceived an enhanced likelihood of the UK retaining access to the single market.
Euro
The Pound to Euro exchange rate slid by around half a cent yesterday on Brexit anxieties. Granted, Sterling did wake from its slumber during the afternoon but the micro GBP/EUR recovery following Downing Street’s comments was not enough to salvage the day’s earlier losses.
In the Eurozone the latest German business climate IFO index printed optimistically at 111.0, which bolstered the appeal of the single currency slightly.
It was also reported that IMF Chief and former French finance minister Christine Lagarde was found guilty of negligence by a French court. The ruling, regarding a payout to businessman Bernard Tapie eight years ago, stated that Lagarde’s criminal negligence allowed for the misappropriation of funds. The IMF Chief will not face a jail term and she will be spared a criminal record.
US Dollar
‘Cable’ resumed its post-Fed slide yesterday, with Sterling ceding -60 pips to the US Dollar.
The combination of a hawkish Fed, which recently raised interest rates and intends to hike a further three times over the next 12 months, and a neutral Bank of England, which believes that a rise in inflation due to Sterling’s 2016 depreciation does not merit a tightening of policy, means that the Pound could struggle against the ‘Greenback’ over the next few months.
Yesterday saw US service sector growth slow from 54.6 to a three-month low of 53.4 but the data had little impact on GBP/USD, which touched a near-one-month low during the afternoon.
Canadian Dollar
The Pound to Canadian Dollar exchange rate tumbled then recovered yesterday.
During the evening it was reported that a Russian ambassador to Turkey had been shot dead in the Turkish capital of Ankara. Moscow described the murder as an act of terrorism and oil analysts warned that demand for crude could rise if the attack provoked geopolitical tensions, which could disrupt oil supplies.
Australian Dollar
Sterling fluctuated with little directional bias against the Australian Dollar yesterday. However, news that the Australian government expects a -AU$10 billion current account deficit by 2019-20 could put downward pressure on the ‘Aussie’ over the coming weeks and months. Canberra had previously forecast a balanced budged.
New Zealand Dollar
The Pound to New Zealand Dollar exchange rate remained fairly flat yesterday but we could see some movements around today’s New Zealand dairy auction. Dairy is the Antipodean nation’s most lucrative export and prices have risen at the previous four auctions, suggesting that the ‘Kiwi’ could catch a bid later today. However, if prices decline Sterling stands to reap the rewards.
Data Released
NZD Dairy Auction Avg. Winning Price MT (DEC 20) Medium $3,622