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Pound slips as Abe warns against no deal Brexit

By Jake Trask

Brexit debate is set to continue in the House of Commons later today as we get ever nearer next Tuesday’s critical vote on PM, Theresa May’s, proposed withdrawal agreement. Yesterday the PM hosted Japanese Prime Minister, Shinzo Abe at Downing St as the two discussed a post-Brexit relationship between the two countries. Abe was the latest high profile name to warn against the UK leaving the EU without an agreement saying the “whole world” wanted the UK to avoid a no deal scenario. Political commentators expect May’s plan to get voted down by a huge margin on Tuesday however it is what happens after that which will be concern to fx traders. Many expect Labour leader Jeremy Corbyn to try and initiate a general election which would likely delay us leaving the EU. This would cause uncertainty which fx markets hate but it would raise the prospect of a softer Brexit which could support the pound. GBP/USD continues to trade between 1.27 and 1.28 currently at 1.2745.

The greenback continues to trade on the back foot after recent dovish comments from Federal Reserve head, Jay Powell and members of the Federal Open Market Committee in the publication of the minutes of its recent policy meeting. There have been few headlines from the US/China trade talks from Beijing however China vice premier Liu He is due to meet US officials later this month which suggests some progress is being made in the dispute. The US Government shutdown continues across the pond and looks set to continue for some time to come. US President, Donald Trump is digging his heels demanding the Democrats agree to billions of dollars of funding for his controversial wall along the Mexican border however the Democrats lead by House of Representatives Leader, Nancy Pelosi look set to continually turn down his request. Later today we have CPI data from the States with the monthly reading expected to slip into negative territory. USD/JPY is at 108.25 with EUR/USD continuing to trade above the 1.15 handle at 1.1530.

The European Central Bank stated that risks for the Eurozone are tilted to the downside in Thursday’s publication of the minutes of its latest policy meeting with concerns growing over the state of the global economy. German and French data of late has missed target with the EZ’s largest economy, Germany looking like it could possibly slip into recession when fourth quarter data is released early next month. On the back the deteriorating outlook money markets have pushed back estimates of when the ECB will hike rates to 2020 from late 2019. If this is the case we will have a new ECB chief at the helm when they do move as current boss, Mario Draghi’s term as Governor comes to an end in November. GBP/EUR trades at 1.1050.

With equity markets relatively calm and progress (of sorts) seemingly being made with US/China talks the commodity currencies have risen over the past 24 hours. AUD/USD has pushed up through .72 overnight to currently sit at .7215. Extra upward impetus has been provided by a better than expected Retail Sales print from Down Under. Data for November showed a 0.4% monthly uptick in spending, slightly better than the 0.3% forecast. GBP/AUD trades at 1.7650.

There has been little data of note from Canada to end the week so rising oil prices and calming tensions between US and China have helped force USD/CAD below 1.32. Brent crude oil has just retaken the $62 handle reversing some of the rout seen at the end of last year. GBP/CAD trades at 1.6790.

NZD/USD is back above the .68 handle as the local dollar ends the week on the up. The next data of note from New Zealand is Monday nights NZER Business Confidence Survey with holders of the Kiwi hoping for an improvement in last month’s -30, its worst reading in nearly 10 years. GBP/NZD trades at 1.8615.