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Sterling lower as Theresa May set to face 1922 Committee.

By Jake Trask

Beleaguered UK Prime Minister, Theresa May is set for another Brexit showdown with her members today with an appearance before the Tory backbench 1922 Committee due in Westminster. The group of backbenchers will no doubt give the PM a rough ride with many hardline Brexiteers likely to pour scorn on her plans for a future relationship with the bloc. The PM stated earlier this week that a withdrawal agreement was “95%” complete however the Irish border conundrum remains, meaning the UK may be forced to stay within a Customs Union with the EU to stop a hard border being needed between Northern Ireland and Ireland. The complexities of solving this issue is where the divisions lie. GBP/USD made a brief appearance above 1.30 yesterday lunchtime before rapidly retreating to trade close to the 1.2940 handle.

President Trump has again critised the perpetrators who murdered of Saudi journalist, Jamal Khashoggi stating whoever organised the plot “should be in big trouble”. Suspects identified as playing a part in the killing were having their Visas revoked advised US Secretary of State, Mike Pompeo. The ongoing spat has caused some downward pressure on equity markets of late which were already suffering on the back of Chinese economic and Italian budget concerns. In other Trump news, the President has again taken aim at the Federal Reserve hiking interest rates saying he may regret hiring Jerome Powell as Fed Chairman but conceded it was too “too early to tell, but maybe”. The greenback will get some fresh impetus one way or another with Friday seeing the latest growth figures for Q3 due to be released. EUR/USD currently trades around 1.1425 with USD/JPY bouncing off 112 to currently trade at 112.50.

The proposed Italian budget has been thrown out by the European Commission in an unprecedented move against an EU member. Despite the planned deficit being below the 3% level which is permitted under EU guidelines, the commission sees 2.4% as being too high, especially given previous administrations efforts to run a deficit of less than 1% in an effort to reduce the countries eye-watering debt pile. The debt in monetary terms is the EUs highest at €2.2trillion with only Greece’s debt to GDP reading of 178% beating Italys 131%. The Italian government now has three weeks to come up with a revised plan which in turn could be rejected. This is set to rumble on for a while capping euro and stock market gains. Adding to the shared currencies woes has been this morning’s PMI results with all the major results missing target except French Services PMI which printed green. The cyclical slowdown in the Eurozone is playing out in the PMI numbers which were posting record numbers this time last year. EUR/USD is down to 1.1425, GBP/EUR is up to 1.1330.

AUD/USD has failed to get a hold above .71 this morning with this morning’s modest rebound in stocks not enough to keep above the big number. It is a week devoid of data from Australia so risk sentiment determined by Donald Trump and Italy will likely determine Aussie moves in the short-term. GBP/AUD sits at 1.8260.

The first of two big monetary policy decisions is due at 3pm with the Bank of Canada expected to raise rates by 25bps to 1.75%. Bank chief Stephen Poloz’s accompanying statement and press conference due around 75 mins later will be the key areas of focus as markets try and identify when the next move will be. GBP/CAD is at 1.6940.

The Kiwi has traded sideways for the past 24 hours as the risk off tone of late continues, capping commodity currency gains. It’s a quiet couple of weeks from New Zealand’s next domestic data of note next Fridays ANZ Business Confidence gauge. GBP/NZD is at 1.9780.