Pound Sterling (GBP) Exchange Rates Struggle as Growth in Manufacturing and Construction Output Slows
The mood towards the Pound deteriorated sharply at the start of the week as chief EU negotiator Michel Barnier noted that he is ‘strongly opposed’ to Theresa May’s plans for post-Brexit trade. With the odds of a no deal Brexit rising once again, GBP exchange rates came under renewed pressure. A surprisingly sharp slowdown in the latest UK manufacturing PMI also dented Sterling, highlighting the fragile nature of the domestic outlook.
A similarly disappointing showing from this morning’s construction PMI has kept the Pound on the back-foot against the US Dollar.
Euro (EUR) Exchange Rates Resilient Despite Rating’s Downgrade
While rating agency Fitch opted to lower Italy’s outlook from stable to negative ahead of the weekend this was not enough to keep Euro (EUR) exchange rates on a downtrend yesterday. Italian finance minister Giovanni Tria hit back against the decision, trying to assure investors that the budget will not be a cause for concern. This helped to limit the negative impact on EUR exchange rates, even as the finalised raft of Eurozone manufacturing PMIs for August confirmed a slight loss of momentum on the month.
Any uptick in the latest Eurozone producer price index data may offer the Euro a boost as it would indicate that inflationary pressure within the currency union remains elevated.
Emerging Market Crisis Keeps US Dollar (USD) Exchange Rates Buoyant
With US markets closed for the bank holiday on Monday, US Dollar (USD) exchange rates put on a mixed performance. As trade tensions with China continued to escalate, with the Trump administration threatening fresh tariffs, a sense of global risk aversion helped limit the downside potential of USD exchange rates. The latest developments in both Argentina and Turkey offered an additional boost to the US Dollar, meanwhile.
Today’s ISM manufacturing index is unlikely to dent USD exchange rates unless sector growth shows significant signs of weakening.
Canadian Dollar Could Climb if Manufacturing Data Impresses
After crunch US-Canada trade talks missed their deadline Canadian Dollar (CAD) exchange rates naturally declined. The potential collapse of NAFTA and threat of fresh US tariffs weighed heavily on CAD exchange rates overnight, with the currency suffering as the general mood of risk aversion prevailed. Although Brent crude continued to push higher, trending above US$78 per barrel, this failed to shore up the commodity-correlated Canadian Dollar.
Another strong showing from August’s Canadian manufacturing PMI may offer CAD exchange rates a rallying point tonight, though. The index came in at a sturdy 56.9 in July.
Australian Dollar (AUD) Drops after RBA Rate Decision
Demand for the Australian Dollar picked up on Monday morning thanks to an unexpectedly strong uptick in August’s manufacturing PMI. As the index surged from 52 to 56.7 this encouraged confidence in the underlying health of the Australian economy, enticing investors to buy back into the ‘Aussie’. A modest uptick in the latest TD Securities inflation measure also benefitted AUD exchange rates, helping to overshadow some less than encouraging retail sales figures.
However, the Australian Dollar reversed gains overnight and dropped against peers like the Pound as the Reserve Bank of Australia (RBA) opted to leave interest rates on hold for another month. Interest rates have now been unchanged for a record-breaking amount of time.
New Zealand Dollar (NZD) Could Fall if Dairy Prices Decline
Second quarter New Zealand trade data failed to encourage any particular positivity for NZD exchange rates, even though the terms of trade showed a rebound on the quarter. As the data fell short of forecasts this dragged the New Zealand Dollar lower as export prices failed to grow as strongly as hoped. With risk appetite generally limited there was little support for NZD exchange rates yesterday.
If the Global Dairy Trade auction shows a fresh decline in prices this could increase the pressure on the ‘Kiwi’.