Pound Sterling Weakens as Theresa May Comes Under Fire over Weak Leadership
The UK’s economic data calendar was empty yesterday, leaving the latest domestic political developments to weigh on Pound Sterling. Theresa May’s ability to lead was once again in question as numerous MPs from her own party voiced their concerns. One of those ministers was Nick Timothy, Theresa May’s former co-chief of staff and the man who put together the 2017 Conservative election manifesto, who lambasted the government for its lack of purpose and direction.
Additionally, Theresa May’s spokesperson sparked concern when admitting that there would be ‘some distance’ between the UK and EU’s starting positions during talks over a transitional period after Brexit.
Bank of England (BoE) Governor Mark Carney is due to speak for the Lords Economic Affairs Committee today. He will be quizzed on his view of the economy and Brexit, so it is highly likely he will say something that either weakens or strengthens the Pound.
US Dollar Pressures Euro Lower, Allowing GBP/EUR to Hold Opening Levels
GBP/EUR was able to hold opening levels yesterday as a rebounding US Dollar pressured the Euro lower against many of its peers. Although European Central Bank (ECB) officials Sabine Lautenschläger and Benoit Coeure both gave speeches, there was nothing in their content to interest investors who were listening out in the hopes of receiving hints regarding the direction of monetary policy in the near-term.
Eurozone fourth-quarter GDP figures and German January consumer price index data will be released today. The year-on-year Eurozone growth rate is expected to have accelerated from 2.6% to 2.7%, so the Euro could rise today.
GBP/USD Slumps as US Dollar Rebounds from Recent Lows on Consumption Data
The Pound Sterling to US Dollar exchange rate slumped yesterday, as USD continued to recover from its post-Brexit referendum low versus GBP. The latest personal consumption expenditure figures, which the Federal Reserve uses as its preferred measure of inflation, met with forecasts. While still below the Federal Reserve’s target of 2%, the fact consumption held steady at 1.5% was a fairly welcome sign that would have done nothing to undermine expectations of an interest rate hike in March.
US consumer confidence data January is due for release today expected to show mild uptick in sentiment. This, combined with yesterday’s solid consumption data, is sure to help boost the odds of at least one interest rate hike this year.
Risk Appetite Continues to Pressure GBP/CAD Lower despite Empty Canadian Data Calendar
The Canadian economic data calendar was as empty as the UK’s yesterday, but the Pound Sterling to Canadian Dollar exchange rate slumped. The ‘Loonie’ was able to resist downwards pressure from the rising US Dollar, even though the strengthening ‘Greenback’ was also causing significant declines for the price of crude oil.
Global Demand for Risk Pushes GBP/AUD Under; ‘Aussie’ Boosted by ‘January Effect’?
GBP/AUD weakened yesterday, with the Australian Dollar on strong form for the most part. The strengthening US Dollar failed to push the Australian Dollar lower, but against itself, as market risk appetite held firm. The commodity correlated currencies could be benefiting from the ‘January effect’ – a phenomenon seen in the stock market but also in currencies. Investors tend to sell currencies in December for tax purposes, which often leads to rebuying in January because the levels have weakened.
The NAB business conditions and confidence indices for December were released very early this morning, with the Australian Dollar likely to continue reacting to the above-forecast results during today’s session.
Risky New Zealand Dollar in High Demand; GBP/NZD Stuck Flat
Risk appetite was also supporting the New Zealand Dollar yesterday, although only to the extent that GBP/NZD was unable to break away from opening levels.
Last night’s New Zealand trade balance figures showed a surprise surplus of NZ$640 million, so NZD could be pushed higher during today’s session.