Home Daily Commentaries May stonewalled in Brussels – China data misses target – ECB issues dovish statement

May stonewalled in Brussels – China data misses target – ECB issues dovish statement

Daily Currency Update

UK Prime Minister, Theresa May, travelled to Brussels yesterday trying to get some concessions from the EU re: the Irish backstop in an effort to salvage her Brexit deal. The pound has slipped this morning as it appears EU leaders are unwilling to give any ground legally on the matter and have issued little by the way of verbal assurances that the arrangement will be temporary. The trip is starting to look a little like Mays trip to Salzburg in September where the first incarnation of the so called “Chequers plan” resulted in a stonewalling from EU leaders leaving the PM looking isolated. We are now in a potentially dangerous time for the UK economy with May looking like she’s going to run down the clock to no-deal in an effort to force her plan through parliament; EU leaders look like they aren’t willing to budge and Brexiteers have dug their heels in re: being tied into the Customs Union indefinitely. If something/someone doesn’t give soon then we could be looking at a chaotic, disorderly exit at the end of March, which will have a devastating impact on the pound and the wider UK economy. GBP/USD which had rallied to around 1.2680 yesterday is now about a cent lower with further losses likely unless we get some positive news from the EU today.

Key Movers

It appears the trade offensive against China driven by US President, Donald Trump is starting to show up on Chinese economic data as the latest Industrial Production figures missed target by some distance. The closely followed gauge printed 5.4% growth y/y a figure last seen in March 2016 and the equal worst since March 2009’s 3.8% y/y which signaled the start of a huge spending blitz by the Chinese government in an effort to protect the economy against the global financial crisis. Asian and European stock markets have all dropped into negative territory on the news with risk assets shunned. In light of this news and a euro sell off (more later) the dollar is well bid however the Japanese yen leads the pack. USD/JPY is down to 113.55. Today’s top tier data is US Retail Sales numbers due at lunchtime.


It’s been a painful 24 hours for the euro with soft rhetoric from European Central Bank chief, Mario Draghi yesterday being followed by soft data from the bloc this morning. The latest ECB interest rate decision saw no change in policy re: interest rates as expected, we also saw confirmation of the end of its Quantitative Easing program this month which had also been expected by the markets. The main area of focus was the press conference which saw a dovish tone cut by Draghi, where he highlighted a slowdown in output from the bloc and changed his language re: risks from being “broadly balanced” to being “tilted to the downside.” EUR/USD had been looking to make another play for 1.14 before the presser however fell away to around 1.1330 once it was wrapped up. Extra downward pressure has been exerted this morning with both French Manufacturing and Services PMIs dropping below 50 for the first time since Sept 2016 and June 2016 respectively. The services figure was particularly eye-catching as the 49.6 shown was expected to be 54.8, a huge miss. EUR/USD trades at 1.1290 with GBP/EUR at 1.1140.


Risk off trade has hit the Aussie hard overnight. The big miss re: Chinese Industrial Production has hit the local dollar with AUD/USD falling from .7225 to around .7165 at present. Its currently Friday night Down Under so Monday nights RBA Monetary Policy Meeting Minutes will be the next big domestic event of note. GBP/AUD trades at 1.7565.


After getting close to $62pb yesterday evening, Brent Crude oil fell back to $61pb on the back of the Chinese data miss, which has also lead to a sell-off in stocks and other risk assets including the commodity currencies. As a result USD/CAD is close to cracking 1.34 again. Positive news re: US Retail Sales will likely be the catalyst to push through the big number. GBP/CAD is at 1.6845.


Like the Aussie, the Kiwi has fallen on the soft China data with NZD/USD dropping from around .6860 to .6790 at the moment. The impact has been felt harder on the Aussie though with AUD/NZD dipping from around 1.0590 to 1.0555. Next week’s big number from NZ is Wednesday nights GDP figure with holders of the Kiwi hoping for a similar result to Q2s 1% growth. GBP/NZD trades at 1.8525.

Expected Ranges

  • GBP/USD: 1.2490 - 1.2675 ▼
  • GBP/EUR: 1.1080 - 1.1240 ▲
  • GBP/AUD: 1.7490 - 1.7650 ▲
  • GBP/CAD: 1.6790 - 1.6945 ▼
  • GBP/NZD: 1.8480 - 1.8650 ▲