Brexit Hopes Bolster GBP Exchange Rates

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Headlines

  • Australian Dollar Benefited from Optimistic Domestic Outlook – Fresh jitters expected on RBA minutes
  • Brexit Progress Encouraged GBP Exchange Rate Gains – Markets look for greater clarity over future trading relationship
  • US Dollar Under Pressure Despite Tax Reform Confidence – Weak housing data may undermine ‘Greenback’ further
  • Bundesbank Forecast Strong German Growth to Continue – Euro trends higher as Eurozone outlook remains positive

Australian Dollar

The release of the Mid-Year Economic and Fiscal Outlook report encouraged investors to favour the Australian Dollar at the start of the week, with confidence in the domestic economy improving. However, as the Reserve Bank of Australia (RBA) looks set to remain on a neutral policy bias for the foreseeable future the upside potential of AUD exchange rates is still rather limited. While iron ore prices also rallied on Monday this was not enough to keep the ‘Aussie’ on a stronger footing across the board.

If the RBA’s December meeting minutes prove more optimistic in tone, though, this could encourage further AUD exchange rate gains today.

Sterling

Demand for the Pound picked up as Theresa May’s Cabinet prepared to formally discuss the UK’s future trade relationship with the EU for the first time. The prospect of greater clarity over the Conservative government’s approach to Brexit improved the mood of investors, even though division amongst ministers persists. While it remains to be seen whether the UK will be able to secure any of its potential demands, however, this was not enough to dampen the mood of GBP exchange rates.

Political developments will continue to influence the Pound over the coming days, especially in the absence of fresh domestic data.

Euro

Markets were pleased to find that the finalised Eurozone consumer price index data for November held steady, confirming a slight uptick on the year. This suggests that inflationary pressure within the currency union is not easing as feared, giving the European Central Bank (ECB) incentive to adopt a less dovish policy outlook. Fresh optimism in the latest Bundesbank monthly report also boosted the appeal of the Euro, with signs pointing towards the German economy maintaining its strong run heading into 2018.

Any dip in December’s German IFO business sentiment indexes, though, could return the single currency to a downtrend.

US Dollar

While there is confidence that the US tax reform bill will be pushed through in the near future this was unable to keep the ‘Greenback’ from faltering. Investors have been inclined to adopt greater caution at this juncture, with the reforms already largely priced into USD exchange rates. Although the NAHB housing market index showed an improvement on the month, rising from 69 to 74, demand for the US Dollar still eased overnight.

With a decline expected from both the latest US housing starts and building permits data the mood towards the ‘Greenback’ could sour further this evening.

Canadian Dollar

Even though oil prices continued to trend bullishly at the start of the week the Canadian Dollar came under pressure across the board. With the general sense of market risk appetite fairly limited there seemed to be insufficient motivation for investors to favour the ‘Loonie’. Despite hopes that the Bank of Canada (BOC) could return to a more hawkish outlook in the coming year the appeal of the Canadian Dollar diminished.

The mood towards the ‘Loonie’ is likely to remain at least somewhat muted ahead of November’s consumer price index data, leaving CAD exchange rates vulnerable to the downside.

New Zealand Dollar

Comments from New Zealand Finance Minister Grant Robertson prompted some degree of ‘Kiwi’ confidence, with Robertson stating that he is comfortable with the general trend of NZD exchange rates. This suggests that the Reserve Bank of New Zealand (RBNZ) will not come under pressure to intervene in the near future, to the relief of investors. Even so, the New Zealand Dollar struggled to gain significant traction against many of the majors in spite of another strong services PMI reading.

An uptick from the fourth quarter Westpac consumer confidence index could see the ‘Kiwi’ strengthen, however.

Data Released

December 19th 07:00 NZD Westpac Consumer Confidence (4Q)
December 19th 10:30 AUD Reserve Bank of Australia December Meeting Minutes
December 19th 19:00 EUR German IFO Business Expectations (DEC) 110.8
December 19th 23:30 USD Housing Starts (NOV) -3.2%
December 19th 23:30 USD Building Permits (NOV) -3.1%

Post by TorFX

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