Daily Currency Update

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Pound bid higher as investors expect May to announce Brexit deadline delay.

By Alex Edwards

The pound jumped overnight on hopes that Theresa May was considering delaying the 29th March Brexit deadline. The Cabinet is discussing this at a meeting this morning and the PM is due to give a speech after midday today, so we’ll find out for sure then. Meanwhile, Labour is pushing for a second referendum, but it’s a little unclear as to what form this will take. The threat may at least be enough to push any hard-line Brexiteers in to supporting a Conservative deal.

In other news, the Bank of England Inflation Report Hearings are due today but are likely to have a muted impact on the pound considering May’s speech at 12:30.

The greenback pulled back on Monday as risk appetite increased after U.S. President Donald Trump said he would delay a planned hike in tariffs on Chinese imports, suggesting trade negotiations between the two countries have made significant progress. On the back of the news global equity markets advanced.

Market participants will look to a testimony by Fed Chair Powell today. He’ll be testifying on the Semi-annual Monetary Policy Report before the Senate Banking Committee in Washington.

The EUR initially rose 0.3% against the greenback yesterday as Finance minister Olaf Sholz proclaimed that he expected the German economy to escape a recession. Markets interpreted this as a possible indication of an upward trend in European economic growth after a bleak few quarters. EUR/USD jumped from 1.1340 to 1.1368 on the news before retreating.

There’s no major European data releases due today and EUR/USD opens at 1.1315, towards the middle of its recent range.

The Australian dollar pushed higher yesterday as President Donald Trump extended the pause on higher tariffs for Chinese imports, in turn supporting Chinese equities, the Chinese Renminbi and China proxies, the Kiwi and Aussie.

Trump via his favourite medium, Twitter, also mentioned that “substantial progress” had been made on “important structural issues including intellectual property protection, technology transfer, agriculture, services, currency and many other issues”. Trump also raised the idea of a signing summit with President Xi, adding that “we are getting very very close”. According to reports, one of the main final issues is the enforcement mechanism with Chinese media reports suggesting the negotiations only get more difficult from here.

The Canadian dollar has weakened against the greenback in the last 24 hours; the main catalyst for the move was a 2% drop in crude prices that led to a 70 pip bounce from the European low of 1.3114. Oil tumbled the most in four weeks after U.S. President Donald Trump tweeted that prices are too high and called on OPEC to “relax and take it easy.”

The New Zealand dollar climbed higher through trade on Monday, buoyed by reports Trump has extended the March 1st deadline for higher Chinese import tariffs. After a 90 day détente US tariffs on Chinese imports were scheduled to increase from 10% to 25% this Friday but recent optimism surrounding trade talks has bolstered expectations a new trade plan will be struck and an increase in trade taxes will be avoided. The uptick in trade optimism has bolstered risk appetite and fuelled rallies across the CNY, AUD and NZD. The NZD jumped five tenths of a percent to touch intraday highs at 0.69004 before profit taking forced a consolidation at 0.6885.

Markets have largely shrugged aside rumours the RBNZ will introduce new measures to sure up the banking system, possibly forcing a shift to looser monetary policy later this year. Having suffered a knee jerk reaction to comments from deputy governor Bascand on Friday the NZD has found support in heightened demand for risk.

Having traded toward to the top end of recent ranges our attentions remain with global risk trends.