Update: Pound Tumbles as Loss of London’s Financial Passport looks Likely
The Pound slumped against the majority of its peers during the European session on Tuesday as the EU ruled out the possibility of London retaining its financial passport if the UK leaves the single market.
This was a blow to the City’s financial sector as it make its increasingly likely that it will lose its status as the financial centre of Europe, possibility leading to a mass exodus of banks and firms involved in the sector.
While Theresa May rebuked the comments, suggesting that London would ‘get a good overall deal’ investors were unconvinced, leading to a drop in Sterling.
Pound Sterling Exchange Rates Trade Higher Following 30-Year High CBI Factory Order Data
Pound Sterling to Euro (GBP/EUR) and US Dollar (GBP/USD) exchange rates traded higher on Monday as upbeat manufacturing data helped the British currency to recover from Friday’s losses.
The Confederation of British Industry’s (CBI) latest report showed that UK factory order books are ending the year at a 30-year high.
28% of firms reported that order books were higher than normal, compared to 11% who reported a shortage of business.
At +16%, the export order index was significantly higher than the long-term average of -18%. The upbeat report bodes well for a strong contribution from the manufacturing sector to UK growth in the New Year.
It’s also worth noting that the CBI factory order books index has improved drastically since the Brexit referendum, suggesting that the accompanying fall in the value of the Pound has made British goods more affordable to foreign buyers.
Data Affecting Today’s GBP Forecasts
EUR German IFO Business Climate (DEC)
NZD Dairy Auction Whole Milk Powder MT (DEC 19)
Pound to Euro Forecast Forecast: Soft Eurozone Inflation to Boost GBP/EUR Exchange Rate
Following a little scare last Friday, when European Commissioner Jean-Claude Juncker warned that Britain’s Brexit trade talks with the EU could be more difficult than the arduous divorce negotiations, the Pound Sterling to Euro (GBP/EUR) exchange rate was able to rebound yesterday.
The Pound to Euro exchange rate rallied by around a quarter of a cent as optimism in the UK factory sector bolstered Sterling and Eurozone consumer prices remained well below the European Central Bank’s 2.0% target.
As expected, the currency bloc saw inflationary pressures hold steady at 1.5% through November. And with the ECB now forecasting that CPI in the region won’t hit 2.0% until past 2020, there is a strong possibility that European monetary policy could remain accommodative in the medium term. This could easily drag on demand for the Euro.
Pound to US Dollar (GBP/USD) Exchange Rate Rallies 70 Pips
The GBP/USD exchange rate appreciated by around 70 pips yesterday as market sentiment favoured the Pound over the US Dollar.
While GBP/USD remains within touching distance of the two-month highs struck at the start of the month, there is potential for investors to start buying back into the US Dollar in the New Year.
President Donald Trump’s tax bill is likely to be passed this week and that could easily spur increases in short-term economic growth and price pressures, which subsequently could very well persuade the Federal Reserve to raise rates more than current projections of three times in 2018.
Pound to Canadian Dollar (GBP?CAD) Exchange Rate Appreciates 80 Pips
The Pound to Canadian Dollar (GBP/CAD) exchange rate increased in value by around 80 pips yesterday as lower prices for Canadian oil continued to act as a bearish signal for the commodity-sensitive ‘Loonie’.
The next Canadian data release to look out for is Thursday’s consumer price index report, which could give Bank of Canada rate hike expectations and the Canadian Dollar a boost if it rises from 1.4% to 2.0%, as anticipated.
Pound to Australian Dollar (GBP/AUD) Exchange Rate Rebounds from One-Month Low
The Pound snapped six consecutive daily losses versus the Australian Dollar yesterday to strengthen by around half a cent and rebound from a one-month low. Upbeat UK manufacturing data bolstered Sterling’s appeal.
Going forward, it will be interesting to see how the risk-correlated ‘Aussie’ fares when the US tax bill passes, as any news liable to boost US interest rates is consequently likely to reduce demand for riskier investments like the Australian Dollar.
Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Surges 140 Pips Ahead of Dairy Auction
The Pound to New Zealand Dollar (GBP/NZD) exchange rate surged by around 140 pips yesterday to rebound from a one-month low.
We could see GBP/NZD register more gains this afternoon if the latest dairy auction sees New Zealand’s most-lucrative export decrease in value. On the other hand, a robust auction result could see the commodity-sensitive ‘Kiwi’ rally.