Pound Sterling Registers Gains on Brexit Update
Following sanguine UK government borrowing figures in the morning, Sterling popped during the afternoon yesterday in response to rumours Britain was prepared to pay €20 billion for access to the EU single market for two years after Brexit.
The latest public finance figures showed that Britain borrowed £5.7 billion in August to balance the books; the lowest August figure since the financial crisis struck a decade ago and better than market expectations of £6.4 billion.
The August report benefitted from sturdy tax receipts, while July’s surplus was revised up from £0.8 billion to £1.3 billion.
Demand for the Pound solidified during the evening when the BBC reported that UK Prime Minister Theresa May was planning to make an ‘open and generous’ offer of around €20 billion to the EU today in exchange for Britain maintaining access to the EU’s single market and customs union during the proposed two-year transition period.
The rumour boosted Sterling because the offer was seen to provide businesses with continuity and potentially speed up the Brexit negotiation process.
Pound to Euro Exchange Rate Bolstered by Hopes of €20bn 2-Year Brexit Transition Deal
The Pound to Euro exchange rate shrugged off mild morning gains yesterday evening as markets responded positively to rumours of Theresa May’s Brexit offer.
If the UK Prime Minister’s speech in Florence hits the mark in terms of moving along the Brexit process and giving businesses the confidence to resume investments in Britain then we could see further gains for Sterling versus the single currency. However, an unconvincing speech could prompt GBP/EUR to give up some of its recent gains. Indeed, the Pound has rallied by around six cents over the last three weeks.
European Central Bank (ECB) President Mario Draghi gave a speech yesterday, but the focus was on the role of government in addressing financial balances rather than future monetary policy.
Currency traders largely shrugged off the statement as unimportant. A 16-year high Eurozone consumer confidence report also failed to ignite demand for the Euro.
Pound to US Dollar Exchange Rate Jumps Over 50 Pips Despite Fed Rate Hike Talk
‘Cable’ appreciated by over half a cent yesterday as markets focussed on Theresa May’s upcoming speech in Florence.
The hope of a two-year transitional Brexit deal with continued access to the single market helped send GBP/USD higher. The US Dollar had registered gains on Wednesday evening following the Federal Reserve’s announcement that it was planning to start unwinding QE in October and raise interest rates one more time in 2017.
However, the positive impact of the Fed’s hawkish message appears to have been fully-priced into the ‘Greenback’, meaning fresh stimulus may be needed to set off future US Dollar rallies.
US private sector data is due for release this afternoon, but predicted subdued manufacturing output of 53.0 is unlikely to spark any significant volatility.
Pound to Canadian Dollar Exchange Rate Strikes 2.5-Month High
The Pound to Canadian Dollar exchange rate surged 100 pips yesterday to strike a two-and-a-half-month high as Brexit optimism ahead of Theresa May’s speech boosted Sterling and US rate hike expectations weighed on the risk-correlated ‘Loonie’.
Later today Canadian CPI inflation is tipped to come in at 1.5% for August, up from 1.2% in July. If the result matches expectations then we could see the Canadian Dollar rally on enhanced Bank of Canada (BOC) rate hike bets.
Pound to Australian Dollar Exchange Rate Soars 300 Pips to Hit 2.5-Month High
Sterling pummelled the Australian Dollar yesterday, rallying by around 300 pips to strike a new two-and-a-half-month high. The risk-sensitive ‘Aussie’ suffered as US policy tightening bets grew, while Reserve Bank of Australia Governor Philip Lowe said that Australian rates would probably remain stable for ‘quite some time’ before inching higher. The RBA remarks weighed on the ‘Aussie’.
Pound to New Zealand Dollar Exchange Rate Grows 250 Pips as Risk Appetite Dries Up
The Pound to New Zealand Dollar exchange rate appreciated by around 250 pips yesterday, buoyed by Brexit transition deal hopes and hawkish Fed policy rhetoric. The risk-sensitive ‘Kiwi’ was negatively impacted by the Fed’s desire to raise rates and unwind stimulus this year.
Data Released Today
09:00 EUR ECB President Mario Draghi speaks in Dublin
09:00 EUR Markit Eurozone Composite PMI (SEP P)
13:30 CAD Consumer Price Index (YoY) (AUG)
14:45 USD Markit US Manufacturing PMI (SEP P)