Pound Sterling Exchange Rates Solid Despite Messy Brexit Talks
The Pound managed to avoid any steep losses yesterday but British sentiment took a turn for the worse as messy Brexit divorce negotiations unravelled with little sign of progress.
Reports emerged in Britain suggesting that cabinet members Boris Johnson and Michael Gove were planning a revolt against Prime Minister Theresa May.
According to the Telegraph, the pair believe the PM is trying to use the Irish border situation as an excuse to push through a ‘soft Brexit’, whereby Britain retains access to the EU customs union and single market.
The speculation adds to concerns that the UK government will not be able to clinch a Brexit divorce deal before EU leaders meet on 14 December.
Sentiment was also hit by comments from the Irish Prime Minister, Leo Varadkhar, and the leader of the DUP, Arlene Foster, suggesting that both would be happy to delay the negotiations into the New Year if an agreement cannot be reached over the next week or so.
Sterling remained surprisingly well-bid through the day, but if officials fail to make progress then investors could start to pull out of the Pound over the next few sessions.
Today’s GBP Headlines
Pound Sterling mostly stable – Despite reports of cabinet revolt.
Brexit headlines bode badly for December deal – But GBP avoids steep losses.
GBP/USD exchange rate down half a cent – GBP/CAD rallies on dovish Bank of Canada.
Disappointing Australian GDP weighs on ‘Aussie’ Dollar – GBP/AUD exchange rate falls.
Pound to Euro Exchange Rate Avoids Losses Despite Negative Brexit Headlines
Data due for release this morning is tipped to confirm that Eurozone GDP increased at an annualised rate of 2.5% in the third quarter.
We could see the single currency tick higher if the report comes in better-than-anticipated, and a softer score could weigh slightly.
However, given the significance of the ongoing Brexit negotiations, the impact of the growth report could be a little less pronounced than usual.
While it’s difficult for traders to price every single nugget of Brexit news into the Pound to Euro exchange rate, investors were not best pleased with the revelations yesterday that the government had not created a report on the economic impact of Brexit on British industries (Brexit Secretary David Davis) or discussed what final Brexit outcome was being pursued (Chancellor Philip Hammond).
GBP/EUR stands to gain if a Brexit deal can be reached before 14 December, but the recent headlines suggest the possibility of no agreement being reached before the end of the year cannot be discounted.
Pound to US Dollar Exchange Rate Dips as Trump’s Tax Cuts Boost Fed Rate Expectations
The Pound to US Dollar exchange rate softened by around half a cent yesterday as Brexit anxieties weighed on the UK currency, while demand for the ‘Greenback’ was boosted by upbeat data and optimism surrounding President Trump’s tax bill.
The November ADP employment change report showed sturdy job creation of 190,000, which was seen to bode well for Friday’s more-influential US non-farm payrolls report.
Even a very weak reading in the NFP would probably not be enough to derail expectations of a Federal Reserve rate hike in December. But a robust score could boost 2018 Fed tightening bets and this could bolster the appeal of the US Dollar.
If, as is looking increasingly likely, Trump’s ambitious tax reform is passed before the New Year, it would likely lead to higher inflationary pressures and further raise the prospect of higher interest rates in 2018.
Pound to Canadian Dollar Exchange Rate Rallies on Dovish Bank of Canada Statement
The Canadian Dollar fell off a cliff yesterday afternoon following the latest policy statement from the Bank of Canada.
The BoC left interest rates on hold at 1.00% as expected but traders were disheartened by a cautious statement suggesting that interest rate rises would be appropriate in the future, but not just yet.
The probability of a hike in January was seen to plunge from 41% to 28% following the statement, which helped Sterling rally by around 70 pips versus the ‘Loonie’.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Gains on Underwhelming Australian GDP Report
The Pound to Australian Dollar exchange rate appreciated by around 50 pips yesterday as sentiment down under was knocked back by an underwhelming Australian GDP report. Slowing from 0.9% to 0.6%, the quarterly growth print undershot expectations of 0.7%.
The disappointing score meant that annualised third quarter growth came in at 2.8%, which was lower than forecasts of 3.0%.
The ‘Aussie’ Dollar slumped following the results, with investors concluding that the figures would not persuade the Reserve Bank of Australia to raise interest rates in the near-term.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Slides on Brexit Concerns
The Pound to New Zealand Dollar (GBP/NZD) exchange rate dipped -70 pips yesterday as Brexit sentiment reduced the appeal of Sterling.
While the ‘Loonie’ and the ‘Aussie’ softened on domestic concerns, the ‘Kiwi’ Dollar avoided such pitfalls and managed to appreciate on the day.
Data Affecting Today’s GBP Forecast
16:00 – EUR Draghi holds conference as GHOS chair in Frankfurt
10:00 – EUR Euro-Zone Gross Domestic Product s.a. (YoY) (3Q F)