Pound Sterling Exchange Rates Struggle as Brexit Rumbles On, but GBP/EUR Gains
In the absence of any fresh UK data the mood towards Pound Sterling (GBP) exchange rates remained generally bearish yesterday, with markets still concerned by the lack of progress on Brexit.
As UK and EU officials remain at odds over the subject of the Irish border there are still worries that a final Brexit deal is a distant prospect.
This left Sterling vulnerable to downside pressure as markets were gripped by a fresh wave of political jitters thanks to developments in Europe – we can expect more of the same today.
Euro to Pound (EUR/GBP), US Dollar (EUR/USD) Exchange Rates Weakened by Italian Political Woes
Worries over the deteriorating political situation in Italy weighed heavily on Euro (EUR) exchange rates at the start of the week.
With the populist coalition having fallen apart before it could assume power and the country looking set for fresh elections in the autumn, the appeal of the single currency deteriorated. There are concerns that another election could deliver a stronger result for the Eurosceptic parties, raising further questions over the future of Italy’s debt-ridden economy.
If the German consumer price index shows a strong improvement on the month, however, this could help to shore up the Euro even in the face of lingering political concerns.
Rising Confidence Supports US Dollar (USD) Exchange Rates
A solid uptick in May’s US consumer confidence index offered support to US Dollar (USD) exchange rates yesterday, with the index strengthening from a negatively revised 125.6 to 128.0.
This suggests that sentiment within the world’s largest economy is continuing to improve, something which is likely to encourage Federal Reserve policymakers. USD exchange rates also benefitted from an increase in risk aversion, capitalising on the relative weakness of the Euro to push higher across the board.
The latest US gross domestic product data could boost the US Dollar further if growth remains sturdy.
Rising US Oil Production Undermines Canadian Dollar (CAD) Exchange Rates, BOC Decision Ahead
With oil prices under pressure thanks to signs of rising US production, the Canadian Dollar (CAD) struggled to find any significant traction against its rivals.
The Canadian Dollar also failed to shrug off bets that the Bank of Canada (BOC) will leave interest rates on hold for some time to come, increasing its policy divergence with the Federal Reserve.
Lingering worries over the future of NAFTA also limited support for CAD exchange rates on Tuesday.
Unless April’s industrial product price index impresses the mood towards the Canadian Dollar is expected to remain muted today.
Risk-Aversion Depletes Demand for Australian Dollar (AUD) Exchange Rates
Demand for the Australian Dollar (AUD) was relatively limited on Tuesday thanks to a fresh bout of market risk aversion.
Political worries in the Eurozone encouraged investors to pile into safe-haven assets, leaving AUD exchange rates edging lower. Markets failed to take any particular encouragement from the latest ANZ Roy Morgan weekly consumer confidence index, meanwhile, which dipped sharply on the week.
New Zealand Dollar (NZD) Exchange Rates on a Softer Footing as US Dollar Strengthens
Weakening market risk sentiment, a stronger US Dollar and lingering uncertainty over the domestic outlook left the New Zealand Dollar (NZD) on the back foot yesterday.
All of the week’s NZ data is set for release on Thursday, so market risk appetite is likely to remain the driving force behind NZD exchange rate movement until then.