Pound Sterling Sentiment Helped by Soothing Brexit Comments
British sentiment improved slightly on Friday following soothing comments from UK Chancellor Philip Hammond on Brexit.
The Chancellor restated his commitment to agreeing a transitional deal with the EU to avoid the UK falling off a ‘cliff-edge’ in March 2019 when Britain officially leaves the European Union. Hammond said that EU nationals would continue to be able to work in Britain during the transitional period and that new EU regulations would be phased in gradually until 2022.
It was also reported that Hammond has told business leaders that he intends to ensure that companies have full access to the single market and customs union until 2021, with changes starting to take effect after an initial two-year transition period. The remarks bolstered British sentiment as they were seen to reduce the chances of a hard Brexit that most economists agree would significantly weaken the UK economy.
Pound to Euro Exchange Rate Tumbles on Robust Eurozone Ecostats
Although the Chancellor’s soothing Brexit comments helped improve demand for the Pound, traders noted that due to political uncertainty around the Conservative government it was difficult to act too strongly on Brexit speculation. If the transitional EU deal was actually agreed, investors said Sterling would likely appreciate against the Euro.
During Friday’s session, however, it was the single currency that pushed ahead. Sturdy European growth numbers helped bolster demand for the Euro, as did a better-than-anticipated German CPI report and a 10-year high Eurozone economic sentiment index.
The currency bloc’s second-largest economy, France, reported sturdy growth of 0.5% in the second quarter, while the Eurozone’s fourth-largest economy, Spain, recorded a whopping 0.9% quarterly expansion. Anecdotal reports from Germany suggest the bloc’s leading light could post a solid score of 0.7%, which would put the Eurozone on course for above-consensus growth of around 2.2% this year.
The Euro also benefitted from a German inflation print of 1.7%, which beat forecasts of 1.5% and boosted European Central Bank policy tightening bets. Traders were also cheered by the European Commission’s latest economic sentiment index, which printed at a decade-high of 111.2 in July.
Pound to US Dollar Exchange Rate Rallies Despite Solid US GDP
The US economy registered annualised growth of 2.6% in the second quarter, it was reported on Friday, more than doubling the weak score of 1.2% in the first quarter. However, soft wage and inflation growth prevented the US Dollar from taking advantage of the upbeat GDP figure.
The ‘Greenback’ slid by around half a cent against Sterling following the growth print, with investors concerned that the personal consumption expenditure (PCE) gauge of inflation (preferred by Federal Reserve Chairwoman Janet Yellen) declined from 1.8% to 0.9% in the second quarter.
The cooling of inflation was seen to reduce the possibility of a Fed rate hike this year, especially considering that the US central bank recently noted that subdued price inflation was one of the biggest threats to higher interest rates. Traders were also concerned that, despite a tightening of the labour market, wage growth slowed from 0.8% to 0.5% on the quarter.
Pound to Canadian Dollar Exchange Rate Sinks on Robust Canadian GDP Print
The Pound to Canadian Dollar exchange rate depreciated by around a cent on Friday following a smashing Canadian GDP report.
The North American economy posted growth of 0.6%, three times higher than expectations of 0.2%. While the annualised growth score came in at 4.6% in May, up from 3.3% in April. The ‘Loonie’ rallied following the rapid growth numbers as bets of further tightening from the Bank of Canada proliferated.
Pound to Australian Dollar Exchange Rate Fluctuates
The Pound attempted to rally versus the Australian Dollar on Friday morning as investors bought Sterling following UK Chancellor Philip Hammond’s encouraging comments on Brexit. However, GBP/AUD gave back its gains during the afternoon as underwhelming US inflation numbers weighed on Fed rate hike bets and boosted global risk sentiment.
Pound to New Zealand Dollar Rises 30 Pips
Sterling pushed ahead against the New Zealand Dollar on Friday, rallying by around a third of a cent as British sentiment improved on hopes of a transitional deal that would see Britain retain access to the single market until 2021.
Data Released
EUR Euro-Zone Unemployment Rate (JUN)
EUR Euro-Zone Consumer Price Index Estimate (YoY) (JUL)