Falling Odds of No-Deal Brexit Boost Pound Exchange Rates

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  • Underwhelming Westpac Leading Index Adds to Australian Dollar Weakness – AUD looks for support on labour market data
  • Lower Odds of No-Deal Brexit Encourage Pound Surge – Investors brush aside continued weakening of business optimism
  • Canadian Dollar Driven Lower by Retail Sales Disappointment – Contraction in sales dents confidence in economic outlook
  • Steady Consumer Price Index Benefits New Zealand Dollar – Resilient inflation limits risk of RBNZ monetary loosening

Australian Dollar Slips as Economy Shows Fresh Signs of Slowing

The mood towards the Australian Dollar remained bearish yesterday as December’s Westpac leading index showed a fresh deterioration. With signs pointing towards the Australian economy having lost further momentum at the end of 2018 confidence in the domestic outlook naturally dimmed. Even though the US Dollar remained under pressure as market risk appetite recovered this was not enough to shore up AUD exchange rates.

This morning’s Australian employment data may offer the Australian Dollar a rallying point, though, if there are any signs of a tightening labour market.

Easing Odds of No-Deal Brexit Support Pound Demand

Reports that the Labour Party is prepared to back a move to prevent a no-deal Brexit scenario saw GBP exchange rates surge higher overnight. Although it remains to be seen whether Parliament can or will remove the threat of a disorderly exit from the table this was still enough to bolster the appeal of the Pound. As investors saw the odds of a no-deal Brexit diminish the impact of a disappointing CBI business optimism index was limited.

If there are signs that an extension of the March deadline could be in the cards demand for the Pound could strengthen further.

Limited Eurozone Consumer Confidence Weighs on Euro

A weaker-than-expected Eurozone consumer confidence index gave investors fresh reason to sell out of the Euro last night. As the index remains firmly within negative territory at -7.9 this does not encourage particular confidence in the domestic outlook. With expectations also mounting ahead of the European Central Bank’s (ECB) first policy meeting of 2019 EUR exchange rates struggled to find much traction.

Greater signs of caution from ECB policymakers tonight may extend the losses of the single currency, with an interest rate hike remaining a distant prospect.

Political Jitters Keep US Dollar Under Pressure

In spite of hopes that the long-running government shutdown could see an end in the near future the US Dollar remained under pressure overnight. The volatility of the current political climate raises the risk of this potential resolution falling through, extending the shutdown’s detrimental impact on the US economy. A modest improvement in the Richmond Fed manufacturing index failed to give USD exchange rates any boost, meanwhile, with the index remaining in negative territory.

Forecasts point towards a modest contraction in December’s leading index, something which could send the US Dollar on another slump.

Canadian Dollar Slumps as Retail Sales Disappoint

November’s Canadian retail sales data failed to impress, falling short of forecast to show a contraction of -0.9% on the month. CAD exchange rates trended sharply lower in the wake of the data, with weaker levels of consumer spending likely to negatively impact economic growth. While oil prices staged a modest rebound on the day this was not enough to shore up the Canadian Dollar during Wednesday’s European session.

If US crude oil inventories show an increase on the week the mood towards the Canadian Dollar could sour further tonight.

Steady Inflation Boosts New Zealand Dollar

NZD exchange rates rallied in the wake of the fourth quarter New Zealand consumer price index data. Contrary to forecasts the headline inflation rate held steady at 1.9% on the year, accompanied by a modest quarterly reading of 0.1%. As inflationary pressure within the New Zealand economy showed signs of resilience this eased worries that the Reserve Bank of New Zealand (RBNZ) could loosen monetary policy in the months ahead.

Any decline in credit card spending in December, though, may erode the New Zealand Dollar’s latest gains.

Data Releases

January 24th 11:30 AUD Unemployment Rate (DEC) 5.1%
January 24th 13:00 NZD Credit Card Spending (YoY) (DEC) 
January 24th 23:45 EUR European Central Bank Rate Decision 0.0%
January 25th 02:00 USD Leading Index (DEC) -0.1%

Post by TorFX

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