Pound Sterling (GBP) Exchange Rates Slide, PMI Reports in Focus
Pound Sterling (GBP) exchange rates are starting the week on the back foot, with GBP dropping against EUR, USD, AUD and NZD as the European session opened. Although both Brexit secretary Dominic Raab and chief EU negotiator Michel Barnier sounded some notes of positivity in comments during a press conference on Friday, underlying Brexit-related concerns are preventing the Pound from climbing.
The acknowledgement that key issues including the Irish border question and role of the European Court of Justice are still yet to be resolved are leaving GBP exchange rates with little in the way of positive momentum.
Any signs of strength in August’s UK manufacturing PMI could give Sterling a modest boost against its rivals, however. The UK’s construction and services PMIs are also due for publication this week.
Euro (EUR) Exchange Rates Lose Momentum as Inflation Rate Dips
Euro (EUR) exchange rates came under renewed pressure at the close of last week as the Eurozone consumer price index unexpectedly declined, easing from 2.1% to 2.0% on the year in August.
This suggests that inflationary pressure within the currency union is not as robust as investors and policymakers would like, undermining the odds of the European Central Bank (ECB) becoming more hawkish any time soon. Underwhelming German retail sales figures also weighed heavily on the Euro, highlighting vulnerability within the Eurozone’s powerhouse economy.
The most impactful Eurozone reports of the next five days, including retail sales and German factory orders, are due for release during the second half of the week.
US Public Holiday Could Leave US Dollar (USD) Exchange Rates Static
Towards the end of last week market jitters over trade continued to benefit US Dollar (USD) exchange rates, in spite of concerns over the negative implications for domestic growth.
Investors were encouraged to pile back into the safe-haven US Dollar as trade talks between the US and Canada failed to progress at the pace markets hoped for. As both the Chicago purchasing manager index and University of Michigan consumer confidence index bettered expectations, USD exchange rates were further bolstered against rivals like the Pound and Euro.
With US markets closed for Labour Day today, US Dollar exchange rates are likely to remain trending in a narrow range.
Trade Talks Weaken Canadian Dollar (CAD) Exchange Rates
While July’s Canadian producer price index saw a solid acceleration on the year, Canadian Dollar (CAD) exchange rates failed to benefit from the improvement. The Canadian Dollar instead came under pressure thanks to trade developments, with US-Canada negotiations coming down to the wire ahead of the Trump administration’s Friday deadline. This limited the appeal of the risk-sensitive Canadian Dollar, especially as oil markets turned jittery.
Unless market risk appetite improves today CAD exchange rates are likely to remain on the back foot.
Australian Dollar (AUD) Edges Higher as Manufacturing Output Improves
An uptick in the Chinese manufacturing PMI and steady Australian private sector credit data was not enough to shore up the Australian Dollar ahead of the weekend.
While the Australian economy showed some signs of resilience this failed to outweigh the general deterioration in market sentiment on Friday. Investors were spooked by the Trump administration threatening to pull the US out of the World Trade Organisation (WTO), escalating fears of a greater breakdown in global trade relations and leaving AUD exchange rates on a weaker footing.
However, the Australian Dollar was able to creep higher on Monday as the AiG Performance of Manufacturing Index unexpectedly increased from 52 to 56.7 in August.
Dairy Auction to Trigger New Zealand Dollar (NZD) Movement
A fresh decline in the ANZ consumer confidence index left the New Zealand Dollar trending lower ahead of the weekend. Markets were not impressed by this latest evidence of economic weakness, with more cautious consumers unlikely to foster greater domestic growth. As market sentiment in general soured thanks to international trade worries support for NZD exchange rates proved limited.
New Zealand’s Terms of Trade index also came in at 0.6% on the quarter rather than the 1.0% forecast by economists. This week’s dairy auction could prove to be a catalyst for NZD movement, with a rise in the price of New Zealand’s key commodity having the potential to boost the ‘Kiwi’.