Pound (GBP) Demand Limited by Brexit Jitters
Support for the Pound proved muted yesterday as anxiety over a potential hard-Brexit scenario continued to weigh on the minds of investors.
Chancellor Sajid Javid failed to encourage investors with his latest comments at Davos, with markets still spooked by the prospect of a future divergence between UK and EU standards. With a long way to go before the shape of the future relationship between the two becomes clear there appeared little incentive to buy into the Pound.
Unless January’s services PMI can deliver a solid improvement on the month GBP exchange rates may struggle to find any positive footing.
Negative Consumer Confidence Keeps Euro (EUR) Under Pressure
Fresh disappointment greeted the latest Eurozone consumer confidence index as it remained trapped at -8.1 in January. Confidence in the outlook of the currency union remained generally muted as a result of the index, even as the threat of US tariffs directed at France eased.
Commentary from European Central Bank (ECB) President Christine Lagarde also failed to encourage the single currency as the central bank left monetary policy on hold once again.
However, the Euro could edge higher today thanks to Germany’s latest manufacturing and services PMIs. The services PMI beat forecasts and came in at 54.2 while the manufacturing PMI printed at 45.2 – still below the 50 mark separating growth from contraction but a definite improvement on the previous month’s reading of 43.7.
Signs of Weakening Economic Momentum Fail to Dent US Dollar (USD)
December’s CB leading index failed to weigh down USD exchange rates yesterday despite the index falling short of forecast. A sharper-than-expected contraction of -0.3% suggests that the world’s largest economy started the year on the back foot. Even so, with the Euro falling further out of favour demand for the US Dollar remained solid.
However, evidence of a slowdown in January’s manufacturing PMI may leave the US Dollar vulnerable to selling pressure this afternoon.
Canadian Dollar (CAD) Extends Losses as Oil Prices Fall
Oil prices slumped in response to the latest rise in US crude oil inventories, putting additional pressure on the commodity-correlated Canadian Dollar. Investors lacked incentive to support CAD exchange rates thanks to the higher odds of a potential 2020 Bank of Canada (BOC) interest rate cut. With the BOC looking open to the prospect of looser monetary policy the potential for Canadian Dollar gains naturally diminished.
A solid monthly rebound in retail sales could encourage CAD exchange rates to recover some of their lost ground heading into the weekend, however.
Improved Unemployment Rate Offers Australian Dollar (AUD) Boost
The Australian Dollar (AUD) climbed as December’s unemployment rate improved unexpectedly, falling from 5.2% to 5.1% and pointing towards a tightening of the Australian labour market.
A sharp uptick in the latest consumer inflation expectations survey added to the positive mood of AUD exchange rates.
However, it was a different story overnight as Australia’s manufacturing and services PMIs fell deeper into contraction territory.
New Zealand Dollar (NZD) Fails to Benefit from Inflation Uptick
Overnight the New Zealand Dollar (NZD) failed to benefit from an uptick in domestic inflation.
The consumer price index rose from 1.5% to 1.9%, approaching the Reserve Bank of New Zealand’s (RBNZ) target. However, a later report showed a -0.9% decline in credit card spending in December.
The decline in consumer spending counteracted the impact of the better-than-forecast inflation data and left NZD little changed against its rivals.