Sterling
The Pound traded mildly lower versus some of the majors yesterday as Brexit minister David Davis begun Brexit negotiations with his EU counterpart Michel Barnier.
The beginning of the talks went by innocuously enough, but traders remain skeptical of the minority Tory government’s ability to clinch a good deal for Britain. Markets believe that without the strong mandate sought when the snap election was called, the government may have to settle for a post-Brexit trade deal on the EU’s terms.
Euro
The Pound to Euro exchange rate traded flatly yesterday as Brexit talks commenced rather amicably. Brexit minister David Davis stated the UK was looking for a ‘new, deep and special partnership’ with the EU, while chief EU negotiator Michel Barnier said that the preliminary talks should help to establish a timetable for the historic negotiations.
In other news: outgoing, hawkish Bank of England policymaker Kristin Forbes was replaced by London School of Economics professor Silvana Tenreyro. Forbes was one of the three BoE officials who voted for higher rates in June, but Tenreyro is thought to be less keen on tightening policy. The LSE professor is an outspoken critic of Brexit and has argued for negative interest rates in the past, which suggests she may not join be ready to join the hawks at this juncture.
US Dollar
Weakened by the appointment of a rumoured dove to the BoE’s rate-setting team, Sterling fell by around -40 pips against the US Dollar yesterday.
The ‘Greenback’ put in a sturdy performance across the board, aided by hawkish comments from New York Federal Reserve President William Dudley, who suggested that US inflation and wage growth were both likely to rebound in the medium term. ‘Inflation is a little lower than what we would like’, said Dudley, ‘but we think that if the labour market continues to tighten, wages will gradually pick up and with that, inflation will gradually get back to 2.0%’. Dudley’s remarks supported the US Dollar because they appeared to signal that the US central bank intends to continue its hiking cycle, despite the recent onset of a few underwhelming domestic data prints.
Canadian Dollar
Sterling softened by around half a cent against the Canadian Dollar yesterday as political instability accentuated Brexit concerns on the first day of the official negotiation process. The Pound was also impacted by a perceived dovish shift in the make-up of the BoE’s rate-setting team, while the commodity-sensitive ‘Loonie’ was propped up by a stabilisation in oil markets.
Australian Dollar
The Pound to Australian Dollar exchange rate fluctuated yesterday but the pair failed to sustain any significant upward or downward momentum.
The ‘Aussie’ was boosted by optimistic comments from Reserve Bank of Australia Governor Philip Lowe, who predicted that domestic growth would accelerate over the next couple of years. However, the commodity-correlated Antipodean currency was hit by a report from Citibank forecasting that Australia’s largest export, iron ore, would decline in value due to oversupply in the market. Iron is currently changing hands at around $63 per tonne, but Citibank predict the commodity will sink towards $45 per tonne in the foreseeable future.
New Zealand Dollar
Sterling struck a five-day low against the New Zealand Dollar yesterday but the Pound was able to recover most of its losses by the end of the London session.
Data Released
08:30 GBP BOE’s Carney speaks at Mansion House event in London High