Sterling
The Pound suffered steep losses at the start of the week due to fears that Brexit-related issues could weaken the UK’s economic outlook.
Dark mutterings of a second Scottish independence referendum and that British Prime Minister Theresa May was willing to curb the freedom of movement for EU citizens as soon as Article 50 is triggered sent shockwaves through the Monday session. Traders feared that the UK economy would suffer were it to lose Scotland and access to EU workers, who are crucial to the smooth running of many businesses. However, analysts noted that nothing has been confirmed regarding EU workers at this stage and that PM May, who would need to give the green light to a second Scottish vote, is vehemently opposed to another referendum. This could potentially lead to a rebound in demand for the Pound if the rumours subside over the coming days and weeks.
Euro
The Pound to Euro exchange rate slid by over half a cent yesterday to strike a weekly low as Brexit concerns continued dragging the UK currency down. The breakdown of a €24 billion merger between the London Stock Exchange and Deutsche Boerse may also have weighed on economic sentiment.
The single currency, meanwhile, was boosted by news that economic confidence in the currency bloc edged up from 107.9 to 108.0 in February. An indicator of business confidence ticked higher from 0.76 to 0.82 The Eurozone report indicated that consumers were feeling the pinch from rising inflation but that sturdy growth in production and exports were enough to lift the overall mood.
US Dollar
The Pound to US Dollar exchange rate stumbled by around -70 pips yesterday morning to hit its weakest level for almost a fortnight.
However, Sterling was able to claw back most of its losses versus the ‘Greenback’ by the end of the London session as investors locked in profit from the 12-day low GBP/USD rate. US durable goods orders rose 1.8% in January it was reported yesterday, up from a -0.5% contraction in December. The figure failed to give the world’s premier business currency a lift, however, because the durables excluding transportation – generally deemed more indicative of wider industry trends – disappointed forecasts of a -0.5% expansion with a -0.2% shortfall.
US data to look out for today includes a US fourth quarter GDP revision, a trade balance report for January and a consumer confidence index for February. All three ecostats are expected to remain steady and therefore have a limited impact on demand for the ‘Greenback’.
The main event is Donald Trump’s first official Presidential address, which is due to start at 2AM on Wednesday morning. If Trump manages to convince markets that his rhetoric around tax reform and fiscal spending really will ‘make America great again’ (at least in the short-to-medium term) then the US Dollar could rack up meaty gains versus the Pound. If the outspoken leader fails to inspire confidence in his economic policy then it is Sterling that could publish meaningful gains.
Canadian Dollar
Following a near-two cent depreciation on Friday, the Pound softened by a further half-cent on Monday morning as Scottish referendum and EU worker rights issues weighed on Sterling. However, profit taking allowed GBP/CAD to recover from its weekly low during the afternoon.
Australian Dollar
The Pound to Australian Dollar exchange rate touched a five-week low yesterday after a terrible start to the week for Sterling. However, profit taking kicked in during the afternoon as traders reasoned that the latest Brexit-related rumours were far from cold fact at this stage.
Looking ahead Australian GDP is due for release early on Wednesday morning and is expected to see a rebound in quarterly growth from -0.5% to +0.7% in Q4. However, the expected positive impact of the result could be instantly reversed if President Trump’s economic policy plans drive bets of tighter monetary policy in the US.
New Zealand Dollar
Sterling tumbled to a 20-day low against the New Zealand Dollar yesterday on Scottish referendum jitters. The pair consolidated some of its losses later on in the session but remained around -50 pips down on the day. The next key event for the pair is Trump’s Presidential address, which could bolster or hinder global risk sentiment depending on its implications for Federal Reserve policy. If Trump’s economic plan is deemed a success then the ‘Kiwi’ could suffer as Fed hike bets grow, while a disappointing announcement could send GBP/NZD lower.
Data Released
13:30 USD Gross Domestic Product (Annualized) (4Q S) High 2.1%
13:30 USD Advance Goods Trade Balance (JAN) High -$66.0b
15:00 USD Consumer Confidence (FEB) High 111
WED 02:00 USD President Trump Addresses Joint Congress High