Brexit Twist Supports Pound Sterling (GBP) Exchange Rates
The Pound caught a bid towards the end of last week’s session as traders responded eagerly to dark mutterings from within the EU that officials were considering ‘internal preparations for future trade talks with Britain’.
This would mean drawing up plans for the UK’s proposed two-year transition deal – even though ‘sufficient progress’ has not been made on the divorce bill.
It is understood that the EU states most exposed to British trade wish to offer UK Prime Minister Theresa May an olive branch, as they believe her fragile position could be compromised if no progress is made – and it is widely accepted that further political uncertainty would only act to hinder and delay the trade negotiation process.
So long as this conciliatory tone is maintained, we could see demand for Sterling increase as bets of the worst-case scenario – no Brexit deal in place by March 2019 – are slowly unwound.
Will Strong UK Inflation Lead to a Higher Pound Euro Exchange Rate?
The Pound to Euro exchange rate touched its highest peak for 10 days on Friday and the latest shift in Brexit sentiment – a positive one! – suggests that we could see Sterling press ahead against the single currency over the next few days.
With little on the economic calendar to concern currency traders today, GBP/EUR could start to see significant moves during Tuesday’s session when inflation data from September is released in both the UK and the Eurozone.
While British price pressures are running above target near the 2.9% mark, Eurozone consumer prices are lagging around the area of 1.5%. If this differential is maintained then hawkish Bank of England and cautious European Central Bank rate bets could drive GBP/EUR to fresh fortnightly gains.
Unlucky US Dollar on Friday the 13th
Despite the highest US consumer confidence score for 13 years and a 1.6% rebound in US retail sales, it was an unlucky Friday the 13th for the US Dollar.
The Pound rallied by around a third of a cent on Friday to strike its highest level in almost two weeks as investors reacted with caution to a slightly lower-than-expected US inflation print.
US CPI rose from 1.9% to 2.2%, but anxious traders saw the glass as half full and sold the ‘Greenback’ because they had been primed for a subtly stronger print of 2.3%.
Although market expectations are pretty much nailed on for a 25 basis point rate hike from the Federal Reserve in December, the fact that Fed commentary has focussed on inflation so much of late meant that investors were not willing to ramp up rate expectations following the (mildly) below-consensus print.
This leaves the door open to additional gains for the Pound versus the US Dollar if the recent bout of Brexit optimism can be maintained.
Pound to Canadian Dollar Exchange Rate Hits 10-Day High
Sterling struck a 10-day high versus the Canadian Dollar on Friday in a sign that GBP/CAD could be headed for further strength in the run-up to next month’s policy statement from the BoE. Indeed, BoE Governor Mark Carney noted late last week that some monetary tightening was likely ‘in the coming months’.
Pound to Australian Dollar Exchange Rate Gains Likely
The small miss in the US CPI print, which slightly softened Fed rate hike expectations, allowed the Australian Dollar to steal 100 pips worth of gains versus the Pound on Friday. However, Sterling looks set to storm ahead later this week, especially if the Reserve Bank of Australia strikes a dovish tone – as it is expected to – during Tuesday’s policy statement.
Pound to New Zealand Dollar Exchange Rate Looks to NZ CPI Report for Direction
The risk-sensitive New Zealand Dollar took advantage of the opportunity afforded to it by the underwhelming US inflation report on Friday. But wider market sentiment suggests the ‘Kiwi’ Dollar’s gains could be short-lived and we could see GBP/NZD come back to life later this evening if the third quarter New Zealand consumer price index score disappoints.
Data Released Today
22:45 NZD Consumer Prices Index (YoY) (3Q)