Today’s Currency Headlines
UK government scandals weigh on GBP forecasts – instability threatens smooth Brexit talks.
Pound to Euro (GBP/EUR) exchange rate softens ahead of new round of Brexit talks – mixed message from EU leaks.
Pound to US Dollar (GBP/USD) exchange rate drifts higher while two-year high oil prices drag the Pound to Canadian Dollar (GBP/CAD) rate lower.
Rising RBNZ rate hike bets boost New Zealand Dollar – UK manufacturing report on tap.
Updated: USD Tumbles as Consumer Sentiment Unexpectedly Falls
The US Dollar weakened against the majority of its peers on Friday afternoon as it was pressured by a surprise fall in household sentiment.
The University of Michigan’s Consumer Confidence index dipped to 97.8 in November, falling well below expectations that it would hold at the near 17-year high of 100.7 struck in October.
While those consumers surveyed appeared to remain upbeat about labour conditions, this sentiment was countered by rising inflation expectations and the prospect of further rate hikes from the Federal Reserve over the coming year.
Updated: GBP Exchange Rates Rally as Britain’s Trade Balance Beats Expectations in September
The Pound is making efforts to push higher this morning in the wake of the UK’s latest trade balance figures.
Data published today revealed that the nation’s trade deficit narrowed to just £2.75bn in September, while also revising the previous month’s deficit down from £5.63bn to £3.46bn.
Accompanying the trade data were some upbeat industrial production figures, with British factory output leaping from 0.3% to 0.7% over the same period.
The ONS reported that the uptick in the UK’s trade balance was largely driven by increased exports to Europe, with a £0.7bn jump in car exports over the summer leading the way.
Pound Sterling (GBP) Exchange Rates Suffer as Political Scandals Hit UK Sentiment
The Pound remained on the back foot versus most of the majors yesterday as investors maintained a cautious approach to the UK currency following a string of scandals over the past week that have led to the resignations of two cabinet ministers.
The threat of further political upheaval is weighing on Sterling because investors fear that weaknesses in Theresa May’s government could impact Britain’s ability to secure a positive Brexit deal, while the prospect of a leadership challenge or another general election is seen as even more disruptive.
Although Theresa May’s position appears very fragile, there is a lack of eligible candidates waiting to replace her.
For this reason the PM may manage to remain in office for the time being, but the spectre of upheaval is likely to remain a negative force on demand for the Pound.
Weak UK sentiment is liable to be the main driver in the currency markets today. However, reports into manufacturing production and trade could also play a part.
Pound to Euro Exchange Rate Softens Ahead of UK Manufacturing Report
The Pound to Euro exchange rate lost out on another -30 pips yesterday due to concerns that political uncertainty could weaken Britain’s hand in the latest round of Brexit negotiations.
Data due for release today could lend Sterling some support if it comes in stronger-than-anticipated. Markets are primed for an annualised expansion of 2.4% in the manufacturing sector, while the UK’s trade deficit is tipped to print at -£12.8 billion.
While sanguine scores wouldn’t necessarily boost near-term Bank of England rate hike bets (considering the UK central bank recently signalled it only intends to hike rates twice in the next three years), a positive day of data could prop-up sentiment towards Sterling.
On the other hand, a set of soft ecostats would likely lead to another day of gains for the single currency.
Pound to US Dollar Exchange Rate (GBP/USD) Could Stabilise Despite Fed Hike Bets
GBP/USD initially slumped yesterday, as traders across the board cut their exposure to the UK economy due to fears that political instability could impair Britain’s efforts to secure a positive trading relationship with the EU after Brexit.
However, the Pound pushed back during the afternoon and actually managed to register mild daily gains of around 30 pips versus the US Dollar.
While the ‘Greenback’ remains supported by well-anchored December Federal Reserve rate hike bets, there is a chance that we could see GBP/USD trade with relative stability over the next few weeks.
As we saw with the BoE rate hike, markets are not averse to selling a currency following a piece of monetary tightening if the central bank does not clearly state hawkish intentions going forward.
This means we could see the Pound to US Dollar exchange rate hold above psychological support leading up to, and through, the Fed policy announcement, so long as the US central bank does not shock markets with a robust promise to continue raising borrowing costs over the next 12 months.
Two-Year High Oil Prices Drag Pound to Canadian Dollar (GBP/CAD) Exchange Rate Lower
Sterling plummeted by around -40 pips against the Canadian Dollar yesterday as oil prices settled near two-year highs and British political concerns remained in focus.
The commodity-correlated ‘Loonie’ often benefits from higher oil prices as crude is the nation’s most lucrative export and steeper prices will lead to more funds entering the Canadian economy.
The Brexit-bashed Pound often loses out on political concerns as investors fear a fragile government could struggle to gain the kind of deal that is required to maintain Britain’s lucrative trading relationship with the EU.
GBP AUD Exchange Rate Drifts Higher, Sterling Claws Back Losses
Profit taking allowed the Pound to claw back some of its recent losses versus the Australian Dollar yesterday.
Jittery traders appeared keen to sell the ‘Aussie’ ahead of the Reserve Bank of Australia’s highly-anticipated growth and inflation forecasts due to fears that a negative outlook could weigh heavily on rate rise bets, and therefore the appeal of the high-beta Australian Dollar.
Pound to New Zealand Dollar Exchange Rate Under Pressure as RBNZ Rate Hike Forecasts Grow
The Pound remained under pressure versus the New Zealand Dollar yesterday as markets continued to revaluate their pricings of the ‘Kiwi’ following a hawkish statement from the Reserve Bank of New Zealand.
The RBNZ stated on Wednesday evening that it now plans to raise rates in the second quarter of 2019, compared to previous estimates of the third quarter.
However, many speculative investors believe the central bank could actually act before the end of 2018, and this slightly more hawkish outlook appears to be bolstering the New Zealand Dollar’s appeal.
Data Released Today
09:30 GBP Manufacturing Production (YoY) (SEP)
09:30 GBP Industrial Production (YoY) (SEP)
09:30 GBP Visible Trade Balance (Pounds) (SEP)
15:00 USD U. of Mich. Sentiment (NOV P)