Pound (GBP) Exchange Rates Extend Recovery despite Brexit Jitters
GBP ticked higher again yesterday, with the Pound to US Dollar and Euro exchange rates extending Monday’s tentative gains despite fresh Brexit concerns after Boris Johnson’s controversial Internal Markets Bill passed its first parliamentary hurdle.
The UK’s latest jobs figures also failed to faze GBP investors, despite reporting that the UK unemployment rate jumped to 4.1% in the three months to July, its highest levels since late 2018.
This allowed the Pound to US Dollar exchange rate to hit $1.29, lifting GBP/USD from last week’s lows.
At the same time, GBP/EUR also strengthened as the Pound to Euro exchange rate edged away from the six-month low it crashed to last week.
Meanwhile, the Pound could face an uphill battle today after data published at the start of the European session showed that UK inflation plummeted to its lowest levels since 2015 in August.
However, inflation came in better-than-expected at 0.2% instead of the 0% forecast. This contributed to pushing the Pound to US Dollar exchange rate higher so far today ahead of the Fed Interest Rate Decision later today.
Euro (EUR) Subdued as Europe Reimposes Some Coronavirus Restrictions
The Euro (EUR) struggled to find support on Tuesday as EUR investors were unnerved as a number of European countries began to re-introduce some coronavirus restrictions in order to avoid another full lockdown.
This offset a stronger-than-expected reading from the latest German ZEW surveys, which suggest economic sentiment continued to improve this month, despite coronavirus and Brexit anxieties.
This led Euro to weaken against the Pound and US Dollar, although the Euro to US Dollar may make some gains today as USD investors await the Fed’s interest rate decision later.
Looking ahead, the Euro is likely to remain sensitive to Europe’s battle with coronavirus going forward, with the single currency vulnerable to additional weakness if the situation continues to deteriorate.
US Dollar (USD) Undermined by Upbeat Market Mood
The US Dollar (USD) was on the defensive through yesterday’s trading session as improving market sentiment on the back of upbeat Chinese data and coronavirus vaccine optimism dented demand for the safe-haven ‘Greenback’.
Further denting the appeal of the US Dollar was a weaker-than-expected expansion in US industrial production in August, which leaves factory output still 7.3% down from its pre-pandemic levels.
Top of the agenda today will be the Federal Reserve’s latest rate decision.
No policy changes are expected from the Fed today, but USD investors will be looking for more insight into how the bank’s recent change to its average inflation target could alter future policy.
USD exchange rates are slipping this morning ahead of the Fed’s interest rate decision with Pound to US Dollar and EUR/USD exchange rates ticking higher.
Canadian Dollar (CAD) Firms on Oil Rebound
The Canadian Dollar (CAD) edged higher on Tuesday as the commodity-linked ‘Loonie’ benefited from a modest rebound in oil prices, which saw WTI crude climb almost 1%.
Coming up, the Canadian Dollar could extend these gains later this afternoon if Canada’s CPI figures report that domestic inflation rebounded last month.
Australian Dollar (AUD) Strengthens in Risk-On Trade
The Australian Dollar (AUD) strengthened overnight on Tuesday, with the appeal of the ‘Aussie’ being bolstered by a risk-on tone as hopes for a coronavirus vaccine continue to grow.
New Zealand Dollar (NZD) Buoyed by Improved Unemployment Forecast
The New Zealand Dollar (NZD) also struck higher in overnight trade as New Zealand’s pre-election economic and fiscal update lowered the peak unemployment forecast from 9.8% to 7.8% in the second quarter.