Sterling stutters as Brexit deadlock remains unbroken.
Friday 21 September, 2018
Daily Currency UpdateThe EU leaders meeting in Salzburg has failed to come to an agreement over the UK's future relationship with the EU post-Brexit. UK Prime Minister, Theresa May's EU colleagues have rejected the so-called “Chequers Plan” and have advised she needs to give further ground in an effort to break the deadlock. European Council President, Donald Tusk said the UK’s proposals risked “undermining the Single Market” so an overhaul of the plan will be needed ahead of Octobers summit to ameliorate the EU’s concerns and make a November deal possible. The PM now has to go to her party conference at the end of September with a no deal scenario looming and calls for her head growing from pro-Brexit members of her party. The PMs mettle is likely to be tested like never before over the next couple of months. London traders have taken poorly to the ongoing impasse with GBP/USD currently heading back down to 1.32 and would have likely been much lower had it not been for broad dollar weakness in the markets over the past few days. Away from Brexit, yesterday saw UK Retail Sales post a 0.3% rise for August when -0.2% was expected.
Key MoversIt appears the dollars bull-run may be petering out as the greenback has been sold off across the board throughout the week. Despite the current purple patch the US economy is going through, fears over what lies in store for the US economy over the next couple of years as a result of Donald Trump’s trade war seem to be weighing on investors’ minds and the dollar has taken a leg lower as a result. We may see things steady a little as we head to the weekend ahead of Wednesdays US interest rate decision from the FOMC. A hike to 2.25% is priced into the market however the message Fed Chairman, Jay Powell sends will be the main area of interest. Will he confirm that another hike is on the table in December and more are likely for 2019? Will he signal December is live however 2019 may see a pause? Or will he indicate December is still up for discussion? Dollar direction for the rest of the year will likely be impacted one or another by the rhetoric. EUR/USD sits close to a three month high at 1.1775 with USD/JPY at 112.65.
The monthly set of PMIs from the Eurozone has been published this morning showing a further slowdown in France and a mixed picture in Germany and the Eurozone as a whole. Expansion has moderated considerably over the past 8/9 months however the economy has seen three years of solid growth to the point the ECB seems likely to hike rates in Q2 2019. Further EUR gains will be seen if the FOMC echoes market sentiments next week that we could see an economic slowdown in America over the next couple of years. GBP/EUR trades at 1.1230
AUD/USD has fallen short of .73 this morning as the dollar sell off stabilises ahead of next week’s FOMC interest rate decision. With no top tier data from Down Under next week it will likely be all about Trump and the FOMC for Aussie direction. GBP/AUD sits at 1.8130.
USD/CAD has hovered around the 1.29 handle for much of the past 24 hours as Brent crudes move to $80 a barrel adds support to the loonie. A small retracement back to the $79 handle has done little to the rate with markets now focused on Canadian CPI which is due this lunchtime. Last month it soared to 0.5% m/m so a retracement is likely. We also have Retail Sales which is expected to show a buoyant 0.6% growth for July. GBP/CAD trades at 1.7060.
Like its counterpart across the Tasman Sea, the Kiwi has risen steadily over the past 10 days as traders begin to recalculate their dollar positions ahead of a potential slowdown in the US economy in 2019/2020. NZD/USD is close to breaking through .67 with GBP/NZD at 1.9750.
- GBP/USD: 1.3180 - 1.3270 ▼
- GBP/EUR: 1.1195 - 1.1275 ▼
- GBP/AUD: 1.8100 - 1.8220 ▼
- GBP/CAD: 1.6980 - 1.7120 ▲
- GBP/NZD: 1.9700 - 1.9840 ▼