Sterling
The Pound fell back yesterday as profit takers moved in following Tuesday’s unexpected surge.
Sterling put in its best daily performance for over a decade following UK Prime Minister Theresa May’s announcement that parliament would get the chance to vote on Britain’s eventual Brexit trade deal – which analysts hoped would prevent the more extreme conservative Eurosceptics from pushing through an especially damaging deal for the UK economy.
However, question marks remain over Theresa May’s ability to achieve the goals she has set out – most notably her plans for a new customs union agreement that would allow certain British industries to trade freely with the continent. Critics argue that EU leaders will insist that Britain pays over the odds for cherry-picked access in order to prevent other member states opting to go it alone. These worries are likely to weigh on Sterling sentiment and we could see the Pound struggle to maintain upward momentum.
Euro
The Pound to Euro exchange rate tumbled by around half a cent yesterday as traders locked in profit from Tuesday’s robust GBP/EUR gains.
Data on the day showed that British unemployment remained at an 11-year low of 4.8% in November, with wage growth rising at a faster-than-anticipated pace of 2.8%. However, sentiment was restrained by a net drop of -9,000 in employment, which some analysts warned could be a telling precursor of future performance in the UK labour market.
In Europe inflation printed at 1.1%, which did little to bolster expectations of action from the European Central Bank. The ECB is due to set policy for January this afternoon, with most traders relatively relaxed over the outcome. Interest rates and asset purchases are expected to remain on hold, but any hints at future policy could impact demand for the single currency.
US Dollar
‘Cable’ slid by around a cent yesterday as markets cashed in on Tuesday’s three-cent GBP/USD appreciation.
Despite President-elect Donald Trump’s comments earlier this week on the over strength of the ‘Greenback’, traders expect the US Dollar to rally across the board this year as bullish spending plans fuel inflation and tempt the Federal Reserve to continue hiking interest rates. This theory was given credence yesterday when US inflation jumped from 1.7% to a two-year high of 2.1%. If price pressures continue to mount the ‘Greenback’ is liable to break higher sooner rather than later.
Canadian Dollar
Sterling registered its only positive gains of the day versus the Canadian Dollar yesterday, which was hampered by a limp policy statement from Bank of Canada Governor Stephen Poloz. The BoC left rates unchanged at 0.50% and Poloz’ rhetoric suggested interest rates would remain at that level through the rest of 2017. This neutral message disappointed some traders who had hoped for a slightly more hawkish tone. GBP/CAD rallied by around 70 pips.
Australian Dollar
The Pound tumbled by around a cent against the Australian Dollar yesterday, mimicking the market wide theme of Sterling adjustment. The UK currency outperformed on Tuesday when UK PM Theresa May gave notice that parliament would have the final say on the government’s Brexit trade deal. However, the admission that the UK would be leaving the single market remained a concern and this helped to push GBP/AUD lower yesterday.
New Zealand Dollar
GBP/NZD softened slightly yesterday as investors settled positions taken out during Tuesday’s robust GBP rally. However, Sterling suffered less against the ‘Kiwi’ Dollar than most of the majors due to a bout of buying at a key technical support level.
Data Released
12:45 EUR European Central Bank Rate Decision (JAN 19) High 0.00%
12:45 EUR ECB Asset Purchase Target (JAN) High EU80b