Pound Sterling News: GBP/USD Strikes 3-Month High as Investors Lose Faith in US Tax Bill

Pound Sterling (GBP) Exchange Rates Sturdy Despite Slowdown in Manufacturing PMI

Pound Sterling (GBP) exchange rates dipped initially when PMI data yesterday morning showed that UK manufacturing output cooled from a four-year high of 58.2 in November to 56.3 in December.

However, Sterling swiftly clawed back its losses and actually posted a respectable set of daily gains versus most of the majors on the first day of trading in 2018. It seems that robust order books, both at home and abroad, were seen to bode well for the factory sector going forward.

It will be interesting to see how today’s construction report performs, however, most traders will be waiting for Thursday’s highly influential service sector PMI before making any large moves. The services report accounts for over 70% of British GDP and is therefore likely to have a more significant impact on demand for the Pound.

Pound to Euro (GBP/EUR) Exchange Rate Fluctuates as Brexit Secretary David Davis Stokes Finance Deal Hopes

The Pound to Euro (GBP/EUR) exchange rate drifted slightly higher yesterday afternoon, even as UK data came in lower-than-anticipated.

Brexit Secretary David Davis reaffirmed Britain’s commitment to including financial services in the future trade deal with the EU. Davis, rather cheekily, suggested that any deal that left out finance would be ‘cherry picking’, using the same term employed as a warning by EU chief negotiator Michel Barnier. Whereas Barnier had previously stated that there would be ‘no cherry picking on Brexit’, Davis suggested yesterday that it would be ‘cherry picking’ for the EU to not include financial services in a sweeping economic agreement.

It’s possible that traders took heart from Davis’ remark and bought into the Pound on the hope that the eventual Brexit trade deal would retain free trade for services.

Pound to US Dollar (GBP/USD) Exchange Rate Hits 3-Month High

The Pound to US Dollar (GBP/USD) exchange rate rallied by around 70 pips yesterday to strike a new three-month high.

While a big reduction in US corporation tax was envisioned as US Dollar positive, due to an expected boost to short-term growth and inflation, markets have reacted negatively to the tax bill. With investors skeptical as to how beneficial the tax reform will prove, markets are now beginning to question whether the Federal Reserve will be able to raise rates three times in 2018, as the bank forecast in December. Prior to the December meeting traders had bought into the ‘Greenback’ on hopes of four or more rate hikes.

Wednesday’s Fed minutes report could provide clarity: any indication that policymakers are worried about the pace of inflation could weigh on the US Dollar, while any positive comments regarding the tax bill could hand the ‘Greenback’ a much-needed leg-up.

Pound to Canadian Dollar (GBP/CAD) Exchange Rate Fairly Stable as Canadian Manufacturing Accelerates

Sterling managed to squeeze out a mild 25 basis point rally against the Canadian Dollar yesterday.

However, GBP/CAD’s advances stalled during the afternoon when a the December Canadian manufacturing report showed that factory output accelerated from 54.4 to 54.7 last month. Looking ahead, we could see demand for the commodity-sensitive currency soften if oil prices pullback when the North Sea Forties pipeline resumes output.

Pound to Australian Dollar (GBP/AUD) Exchange Rate Rallies Despite 4-Month High Chinese PMI

The Australian Dollar was initially supported by a four-month high Chinese manufacturing PMI during yesterday’s session, but demand for the high-risk ‘Aussie’ cooled later in the day and Sterling managed to register gains of around half a cent.

The Chinese factory PMI rose from 50.8 to 51.5, which was seen to bode well for trade relations between the two Asia-Pacific nations.

Pound to New Zealand Dollar (GBP/NZD) Exchange Rate Performs Well as NZ Dairy Prices Rise at Auction

The Pound to New Zealand Dollar exchange rate appreciated 100 pips yesterday to hit its highest level for over a week. Sterling’s upbeat performance came despite a 2.2% rise in New Zealand dairy prices at the latest Global Dairy Trade auction.

As the nation’s most-lucrative export, dairy can often influence the appeal of the ‘Kiwi’ Dollar.

Adam Solomon

Adam joined the team at TorFX soon after graduating from University in 2005 with a degree in Journalism. Since then Adam has advanced to become both Head of Trading and Head of Treasury. His keen interest in the currency market and knowledge of what drives exchange rates makes him perfectly positioned to produce regular market updates focused on the movements of the major currencies.

Contact Adam Solomon