Daily Currency Update

Get access to our expert daily market analyses and discover how your currency has been tracking with our exchange rate tools.

Trump’s comments weigh on USD.

By Hamish Muress

It was a truly typical summer day for the currency markets yesterday, in particular sterling. With the markets bereft of any concrete UK data to dig their teeth into between now and the end of the month, today’s Brexit negotiations could be significant. As we saw last week Brexit risks are still weighing on the pound and any more talk of disagreements, breakdown in negotiations or diverging ideologies will add to the drag on sterling (even no news whatsoever will be perceived as negative). According to UK Brexit Minister Dominic Raab securing a Brexit deal is still the most likely outcome for the UK, however Dr. Liam Fox’s comments are still ringing in the ears of many. The UK has until October to finalise negotiations, a date that is getting closer and closer.

The pound did however get a small reprieve courtesy of President Trump overnight following his comments around the Federal Reserve but this morning we are still a long way off 1.30, a number key and significant for many UK businesses, indeed the risk for sterling is still to the downside.

The market saw outflows from the USD yesterday as hopes over the upcoming US-China trade negotiations gathered pace alongside comments from President Donald Trump. The USD index dropped 0.3% whilst USD/JPY fell through the psychological level of 110 for the first time since June 28th. Trump was critical of the Federal Reserve and Jerome Powell, complaining that was not the loose monetary policy candidate he was hoping for and that he was not getting any help from the Fed. This is (un)surprising from Trump due to the fact that Chairman Powell was the President’s pick for the top job at the Fed and was seen by many as a continuity candidate for Janet Yellen. This is not the first time that the President has stepped away from tradition and been critical of the Federal Reserve’s current rate hike path having previously done so in July with the effect seeing a selloff in the USD. Powell nor anyone else at the Fed are likely to be perturbed by Trump’s comments and if anything it may give them further drive to hike rates again in September then December.

The Euro has bounced back from last week’s 13 month lows against the USD. Having flirted dangerously with 1.12 the Euro is now thoroughly holding onto 1.15 due to a combination of the USD outflows (see Trump’s comments) and slightly more confidence in Turkey. There is no significant EZ data coming out for the markets until Thursday so GBP/EUR will to an extent follow the news of ongoing Brexit negotiations.

It was squeaky bum time for Australian Prime Minister late last night as he avoided defeat on a leadership challenge from the Liberal party’s Peter Dutton. Turnbull won the vote 48 – 35 and this follows a hectic week for the PM off the back of bitter infighting around the country’s renewable energy policy. Whilst Turnbull survived the vote his government remains behind in the polls to the Liberal Party. Meanwhile the latest minutes from the RBA offered very little extra information given that Governor Lowe has since spoken on a number of occasions since the meeting.

The Canadian dollar surged to its strongest level against the USD in around 10 days off the back of Trump’s comments regarding the Fed with USD/CAD testing 1.30. Friday’s surging CPI figures mean that the market is continuing to firm up its expectations of an interest rate hike, adding further potential strength to the loonie.

The Kiwi, particularly receptive to the current US-China trade war will be keeping an eye out on the current negotiations. The New Zealand dollar is also set ahead of tonight’s retail sales and important dairy auction. Dairy prices have not risen since May, so the Kiwi could be desperate for a rebound.