Brexit Uncertainty Dominates Pound Outlook in Spite of Improved UK Wage Growth

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Headlines

  • NAB Business Confidence Index Continues Decline – Australian Dollar under pressure in spite of risk appetite
  • Brexit Uncertainty Overshadows Stronger UK Wage Growth – Political worries weigh on Pound
  • Improved German Economic Sentiment Fails to Boost Euro – Single currency gains limited as index remains in negative territory
  • New Zealand Dollar Shrugs Off Signs of Contracting Economic Activity – NZD exchange rates vulnerable to weaker food price index


Softening Business Confidence Dents Australian Dollar

As the NAB business confidence index continued to deteriorate in November this left AUD exchange rates on a weaker footing. Although the third quarter house price index showed a smaller contraction than forecast this was not enough to shore up the Australian Dollar, still pointing towards a weaker domestic economy. However, AUD exchange rates gained a boost overnight amid reports that China will cut its tariffs on US car imports.

Even so, if December’s Westpac consumer confidence index points towards softening domestic sentiment this could drag on the Australian Dollar this morning.

Pound Struggles as Brexit Worries Outweigh Accelerating UK Wages

Although UK average weekly earnings picked up unexpectedly in the three months to October, accelerating 3.3% on the year, this was not enough to give the Pound any significant rebound. Investors remained largely focused on the latest developments surrounding Brexit as Theresa May engaged in fresh, emergency talks with EU leaders. With the threat of a no-deal Brexit rising, as well as that of a leadership challenge or general election, there remained little reason to favour the Pound yesterday.

Unless markets see signs of greater clarity over the UK political outlook GBP exchange rates are likely to remain biased to the downside.

Euro Struggles to Capitalise on Improved German Economic Sentiment

An unexpected improvement in the German ZEW economic sentiment index for December offered the Euro some encouragement. As the index jumped from -24.1 to -17.5 this suggested that sentiment without the Eurozone’s powerhouse economy is improving. Even so, as the index remains firmly within negative territory EUR exchange rates struggled to capitalise on the improvement. With confidence in the economic outlook still generally limited the single currency remained under pressure.

Any improvement in October’s Eurozone industrial production data could encourage the Euro to trend higher across the board, however.

Weakening Business Optimism Limits US Dollar Upside

A general increase in market risk appetite limited the appeal of the US Dollar last night, with trade tensions between the US and China showing signs of thawing. USD exchange rates failed to benefit from November’s NFIB small business optimism index, which fell short of forecast to slip from 107.4 to 104.8. While the latest raft of producer price index data proved stronger in nature this was not enough to set the US Dollar on a bullish trend.

Tonight’s US consumer price index data could see USD exchange rates slump if inflationary pressure eases on the month or year.

Oil Price Uptick Offers Limited Support to Canadian Dollar

Reports of a fresh supply disruption in Libya encouraged oil prices to push higher yesterday, although Brent crude failed to break above US$61 per barrel. With oil markets returning to a slightly more optimistic outlook the Canadian Dollar found some support. However, CAD exchange rates struggled to find much traction as concerns over the outlook of the domestic economy persisted.

If markets maintain a more risk positive outlook today, though, this should limit the downside bias of the Canadian Dollar.

New Zealand Dollar Shakes Off Weaker Growth Indicator

November’s ANZ truckometer report proved disappointing as the headline index contracted -1.9% on the year. This does not bode well for the domestic outlook, pointing towards a weaker sense of economic momentum. Nevertheless, the New Zealand Dollar was able to gain ground against its rivals as the general sense of market risk appetite improved. A contraction in retail card spending also failed to weigh down NZD exchange rates.

The New Zealand Dollar could struggle to hold onto a stronger footing over the course of the day, however, if investor sentiment starts to sour.


Data Released

December 12th 10:30 AUD Westpac Consumer Confidence Index (DEC) 
December 12th 21:00 EUR Eurozone Industrial Production (YoY) (OCT) 0.8%
December 13th 00:30 USD Consumer Price Index (YoY) (NOV) 2.2%

Post by TorFX

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