Demand for Pound Remains Soft as UK Budget Deficit Widens
Demand for the Pound remained weak on Friday as rising budget deficit data added to Brexit anxieties.
Sterling sustained steep losses on Thursday when UK trade minister Liam Fox suggested that Britain could get by without a Brexit trade deal. However, economists believe that the British economy would weaken substantially if the UK does not agree a new trade deal with the EU.
Data released on Friday showed that public sector borrowing jumped to £6.9 billion last month, up from £4.8 billion in June 2016. The figure overshot market expectations of £4.7 billion and suggests that government borrowing targets might not be met.
Higher inflation – due to the post-Brexit depreciation in the Pound – contributed to the downbeat figure, as did lower GDP in the first quarter.
Pound to Euro Exchange Rate Strikes Fresh 8-Month Low
The Pound to Euro exchange rate slumped to a fresh eight-month low on Friday as markets continued to price-in the possibility of monetary tightening in the Eurozone.
On Thursday European Central Bank President Mario Draghi suggested that policymakers would discuss winding down stimulus in the autumn.
The single currency soared to eight-month highs versus Sterling and two-year highs versus the US Dollar following the statement as markets adjusted their policy projections.
However, at present, the ECB intends to remain accommodative for a long period of time, due to the Eurozone’s stubbornly low rate of inflation.
Pound to US Dollar Exchange Rate Grapples with Psychological Resistance
Sterling grappled with longstanding psychological resistance versus the US Dollar on Friday, ultimately closing below the key handle.
While holders of the Pound remain gripped by fears that a difficult Brexit negotiation process could dramatically reduce trade with the EU and therefore economic growth, the ‘Greenback’ has been suffering from concerns over US President Donald Trump’s ability to pass legislature.
Trump gave the Dollar a massive boost when he was elected due to hopes that his proposed policies of reducing tax and increasing spending would spur economic growth and bolster Federal Reserve rate hike expectations.
So far, however, the President has struggled to pass new laws, despite the Republican majority in both the House of Representatives and Congress. This has spooked markets, causing Fed rate expectations to shrink and the US Dollar to drop.
GBP/CAD Strikes 5-Month Low as Retail Sales Impress
Sterling skidded to a five-month low versus the Canadian Dollar on Friday, depreciating by around a third of a cent as markets reacted positively to Canadian retail data.
Retail sales volumes increased 0.6% in May, beating expectations of 0.3%, and bolstered demand for the ‘Loonie’. A separate report showed that the Canadian consumer price index slowed from 1.3% to 1.0% in June, however, GBP/CAD failed to rally on the figure.
GBP/AUD Jumps 120 Pips on Dovish RBA Rhetoric
The Pound to Australian Dollar exchange rate jumped 120 pips on Friday following an unexpected verbal intervention from the Reserve Bank of Australia.
RBA deputy governor Guy Debelle poured water on rate hike bets, clearly stating that Australian interest rates would not move in tandem with other advanced economies.
Debelle said that the RBA was not going to start raising borrowing costs just because the Bank of Canada recently started hiking rates.
Pound to New Zealand Dollar (GBP/NZD) Hits New 3-Week Low
Sterling drifted lower by almost a cent to strike a new three-week low versus the New Zealand Dollar on Friday as unexpectedly poor UK trade figures heaped more pressure on the downtrodden Pound.
Data Released
USD Markit US Manufacturing PMI (Jul P)