Markets Shrug off May’s Brexit Vote Defeat, Look Ahead to Retail Sales
Further light was shone onto the divisions within Parliament yesterday evening as the latest Brexit vote revealed the UK was no closer to agreeing on a deal to leave the EU. In the event, Prime Minister Theresa May lost heavily, with members of her own party abstaining from the vote on principle over the Irish backstop issue.
Markets were left unfazed in the immediate aftermath of the vote, however, given that the result is not legally binding, although the Pound fell markedly over the course of the day as traders became weary of the latest Brexit wrangles.
January’s RICS house price balance data also put pressure on the Pound yesterday as a -22% contraction pointed towards persistent weakness within the housing market.
Today, traders are looking ahead to the UK January retail sales figures report, with any positive surprises liable to give Sterling a welcome boost.
Rising Consumer Inflation Expectations Fails to Boost Australian Dollar
An uptick in the latest consumer inflation expectations survey failed to keep the Australian Dollar on a stronger footing yesterday. Even though indications pointed towards a higher level of inflationary pressure this was not enough to encourage AUD exchange rates, with the Reserve Bank of Australia (RBA) looking set to maintain a more cautious outlook in the months ahead.
Bets on potential progress towards a US-China trade agreement, however, helped to limit the downside bias of Australian Dollar exchange rates.
As long as market risk appetite picks up over the course of today this should limit any AUD exchange rate weakness ahead of the weekend.
Euro Remains under Pressure after Flatlining German GDP
EUR exchange rates came under pressure as the fourth quarter German GDP data fell short of forecasts. Investors were caught off guard as the Eurozone’s powerhouse economy stagnated in the final three months of 2018, only narrowly avoiding falling into a technical recession.
Coupled with the muted state of the overall Eurozone growth data this left the Euro on the back foot, adding to fears that the economy would continue to lose momentum in 2019.
If the Eurozone trade surplus widens as forecast, though, this could offer a boost to the single currency tonight.
Shock Drop in US Retail Sales Knocks US Dollar
Confidence in the US economy took a significant dent yesterday as December’s advance retail sales data disappointed expectations, slumping -1.2% on the year. This surprise contraction weighed heavily on the appeal of the US Dollar, suggesting that consumers could be ‘maxed out’ and are beginning to rein in spending. Underwhelming jobless claims data also limited the potential of USD exchange rates.
Unless today’s University of Michigan consumer sentiment index picks up markedly, the outlook for the US Dollar could darken further.
Manufacturing Sales Contraction Weighs on Canadian Dollar
December’s Canadian manufacturing sales data proved disappointing, showing a fresh -1.3% contraction on the month. The continued decline suggests that the Canadian economy remains in a less robust state of health than previously thought, with the manufacturing sector continuing to slow. CAD exchange rates lost further ground in the wake of the data, even as market risk appetite generally improved on hopes of a US-China trade breakthrough.
Tonight’s ADP employment change report could offer the Canadian Dollar some support, provided that signs point towards a tightening of the labour market.
New Zealand Dollar Extends Gains as Food Price Index Rises
The New Zealand Dollar continued its bullish run yesterday, continuing to benefit from the more optimistic tone of the Reserve Bank of New Zealand’s (RBNZ) recent comments. NZD exchange rates were further encouraged by a sharp uptick in the food price index, which strengthened 1% on the month in January. With signs pointing towards stronger inflationary pressure, NZD strength is likely to persist a while longer.
As long as the manufacturing PMI remains firmly in expansion territory this is likely to keep NZD exchange rates on their positive trend.