Home Daily Commentaries Thumbs up, pound up, as Brexit headlines turn increasingly fickle

Thumbs up, pound up, as Brexit headlines turn increasingly fickle

Daily Currency Update

GBP/USD wobbled a bit on the back of a few Brexit related headlines yesterday. Theresa May held a cabinet meeting in the hope of getting some agreement on a draft deal and a compromise plan for the Irish backstop. No decisions were made, apparently, but at least there were no walk outs. Ministers were also told to expect to be summoned again soon, at which point they may be asked to endorse a plan. As Dominic Raab left the meeting, he gave a thumbs up, enough to move GBP/USD a few points higher on the day. More generally, given there was no negative news arising from the meeting, hopes remain for a deal being drafted and done soon, which in itself was enough to lend support to the pound. GBP/USD has since broken through the 1.31 interbank figure and trades towards the top of its most recent range in early London.

A weaker USD helped cable push through the 1.31 too, a result of the Democrats taking a majority in the House and the Republicans holding the Senate in the American midterm elections, a definite blow to the Trump administration (more to follow on this in the USD section).

There’s no major economic data due for release today, either from the US or the UK. Brexit headlines will no doubt continue to be heavily scrutinised, but for now it seems markets are generally more positive than they have been recently, which will likely continue to support the pound in the near term.

Key Movers

As widely expected, the Democrats won control of the House of Representatives and Trump and his fellow Republicans expanded their majority in the Senate in the mid-term elections, which now gives the democrats the opportunity to block Trump's agenda and open his administration to intense scrutiny.

The House now has the ability to investigate Trump’s tax returns, potential business conflicts and allegations about his links with Russia in the run up to the 2016 presidential elections. Equity markets made good gains on the back of this and the dollar retreated on the belief that Democrats may agree to greater fiscal stimulus, albeit Trump can still force through trade tariffs without Congressional approval.

As for the rest of the week, be sure to keep an eye out for further reaction to the election results. The Fed are also meeting tomorrow, when the central bank announces its latest policy decision. The Fed’s benchmark interest rate is expected to remain on hold at 2-2.25%.

EUR/USD hit a new two-week high of 1.1475 during the US election night before consolidating in the mid-1.1400s. It’s trading back towards the top end of its overnight range this morning, though, and the prospect of a move through 1.15 now becomes more real.

Strong gains across Europe’s service sectors and an uptick in German factory orders also helped underpin Euro upside. In the meantime, Italy’s government called for a vote of confidence yesterday, as it faces tensions among its own members, mostly on the subject of rights and restrictions of asylum seekers. This could potentially upset the single currency’s march higher.

AUD/USD has pushed higher over the last 24 hours, mostly a result of a weaker dollar, itself a result of the midterm election results. There wasn’t any Australian data released overnight and so AUS traders took its cue from the US elections, mostly.

The US Mid-Term elections dominated trading in USD/CAD overnight, and if anything the CAD is slightly weaker in early European trading, a result perhaps of the ongoing sell-off in oil. That said, there was some good news from Canada yesterday with building permits printing higher at 0.4% against a forecasted 0.3%

Markets will be focused on reaction to the US midterms as well as today’s Ivey PMI figures for direction.

NZD was one of the best performing currencies overnight, gapping higher following the release of much better than expected quarterly employment data. The unemployment rate printed at 3.9% vs. expectations for 4.4%, with all other iterations of employment data including average hourly earnings all printing way above market forecasts. NZD/USD jumped 60 points on the news and has continued to push higher through the last few hours, to open this morning at .6772. This latest employment beat will no doubt continue to support the kiwi into the end of the week and the near term.

Expected Ranges

  • GBP/USD: 1.3080 - 1.3310 ▼
  • GBP/EUR: 1.1390 - 1.1500 ▼
  • GBP/AUD: 1.7950 - 1.8150 ▼
  • GBP/CAD: 1.7150 - 1.7380 ▼
  • GBP/NZD: 1.9350 - 1.9650 ▼