Pound Sterling (GBP) Exchange Rate Volatility Ahead
The Pound (GBP) didn’t have the best year in 2018, with Brexit uncertainty driving the currency lower against all the majors. Sterling is set to close the year down almost 2 cents against the Euro and around 9 cents weaker against the US Dollar.
With the UK’s exit from the EU set to take place in March, the volatility in GBP exchange rates is expected to continue in 2019.
The vote on PM Theresa May’s Brexit deal in January could be key to how the Pound performs for the first quarter of the year.
If the PM fails to gain the necessary support for her deal the odds of a no-deal Brexit will rise, potentially driving the Pound lower in the process.
Euro (EUR) Exchange Rates Could Slide if Eurozone Growth Slows
While the Pound (GBP) has spent 2018 on the back foot against most of the majors, it hasn’t been a great year for the Euro either.
The common currency did edge higher against Sterling, but shed almost 6 cents against the US Dollar over the course of 2018.
The latest ecostats from the Eurozone have indicated that growth in the currency bloc is slowing, and if that trend continues in 2019 the European Central Bank (ECB) could opt to keep interest rates on hold for the foreseeable future. A dovish stance from the ECB next year would be Euro-negative.
Will US Dollar (USD) Exchange Rates Have Another Strong Year?
The US Dollar (USD) was one of the currency winners of 2018. Four rate hikes from the Federal Reserve, geopolitical uncertainties and the threat of a US-China trade war have all conspired to lend support to the US Dollar over the last twelve months. Indeed, the currency has posted solid gains against the Pound and Euro, as well as the Australian and New Zealand Dollars.
However, recent US data has failed to impress and some economists are now concerned that the domestic economy may struggle if the Fed continues its rate hiking cycle. If these concerns persist, the US Dollar may face resistance in the year ahead.
Reaction to President Trump’s trade policies and global risk-appetite will also be driving forces behind USD movement in the year ahead.
Canadian Dollar (CAD) Exchange Rates Mixed
While the Canadian Dollar (CAD) gained on a broadly softer Pound (GBP) in 2018, its performance against the US Dollar (USD) was far less impressive.
Over the course of the last 12 months the CAD/USD exchange rate has weakened by around 6 cents as depleted demand for higher-risk currencies and falling crude oil prices took a toll.
However, the Bank of Canada (BoC) did increase interest rates in 2018, and Canadian economic output has been fairly solid.
The BoC has indicated that interest rates need to rise to a ‘neutral stance’ to achieve its inflation target.
Further rate hikes in 2019 and robust domestic data could lend the Canadian Dollar support in the year ahead, but risk appetite will also have a significant part to play in how the Canadian Dollar performs.
AUD & NZD Exchange Rates Outlook Dependent on Trade Talks
Both the Australian and New Zealand Dollars fell against the US Dollar in 2018 as investors flocked to the safety of the ‘Greenback’.
Political upheavals and fairly neutral domestic monetary policy decisions also kept the Antipodean currencies under pressure.
The outlook for both currencies for 2019 will largely depend on US/China trade and its impact on risk appetite.
US/China trade talks are set to reach some sort of conclusion in March.
If relations improve it could boost higher-risk currencies like the Australian and New Zealand Dollars.
However, if the talks break down and a full-scale trade war breaks out, we can expect AUD and NZD exchange rates to weaken.