GBP Remains Under Pressure as UK Inflation Appears to Hit Peak

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Headlines

  • Australian Business and Consumer Confidence Rise – Higher wages could bolster AUD exchange rates
  • Sterling Slid as UK Inflation Disappointed – Signs suggest greater BoE caution in coming months
  • Eurozone Economy on Track to Top US Growth – Euro bullish as domestic data continues to impress
  • New Zealand Dollar Lacks Support – Worries over future RBNZ leadership persist

Australian Dollar

A surprise uptick in the NAB business confidence index boosted the ‘Aussie’, particularly as the ANZ Roy Morgan weekly consumer confidence index also strengthened. This painted a more optimistic picture of the domestic outlook, even though this is unlikely to be enough to alter the policy stance of the Reserve Bank of Australia (RBA). While the latest Chinese retail sales and production data proved rather disappointing, denting market risk appetite, this was not enough to weigh down the Australian Dollar yesterday.

As forecasts point towards an improvement in the third quarter Australian wage price index this could give AUD exchange rates an additional boost.

Sterling

The mood towards Sterling soured further overnight after the UK consumer price index failed to rise as forecast in October. Investors were disappointed to find that inflationary pressure has apparently peaked at 3.0%, giving the Bank of England (BoE) less reason to consider further monetary tightening in the coming months. Political jitters also continued to drag on GBP exchange rates, with Parliament gearing up to debate the EU withdrawal bill and its many amendments.

A disappointing showing from the latest wage growth data could see the Pound extending its losses, with markets likely to be discouraged by signs that the wage squeeze is tightening further.

Euro

Germany continued to demonstrate its economic robustness, with the third quarter gross domestic product clocking in at 0.8% rather than 0.6% on the quarter. Naturally this encouraged the Euro to trend higher across the board, with the currency union still looking on track to outpace the US economy for the second year in a row. Even the latest commentary from European Central Bank (ECB) President Mario Draghi was not enough to knock the single currency off its bullish run.

However, if the Eurozone trade surplus is found to have narrowed in September this could take some of the wind out of the Euro’s sails.

US Dollar

While the NFIB small business optimism index failed to rise as far as forecast this still offered another positive signal from the world’s largest economy. Bullish producer price index data also kept the odds of a December Federal Reserve interest rate hike high, suggesting that inflationary pressure is still building. Even so, the appeal of the US Dollar remains tempered by concerns over the likely delay of the Trump administration’s promised tax reforms.

Any moderation in October’s US consumer price index data, though, could see USD exchange rates come under greater pressure.

Canadian Dollar

With market focus straying back towards the renegotiations of the North American Free Trade Agreement (NAFTA) support for the Canadian Dollar floundered. Concerns remain over the likely outcome of talks, with investors jittery of the prospect of the deal collapsing under US pressure. As oil prices eased somewhat this left CAD exchange rates vulnerable to the downside.

With domestic data lacking today the appeal of the Canadian Dollar is likely to remain limited.

New Zealand Dollar

Political speculation kept the New Zealand Dollar on a weaker footing, as markets remain sceptical over the prospects of the new government. Particular worries still centre on the future of the Reserve Bank of New Zealand (RBNZ), given that the government will soon appoint its new Governor. As signs seem to suggest that the central bank could turn more dovish the ‘Kiwi’ continues to lack any particular demand.

Unless market risk appetite picks up substantially NZD exchange rates look set to continue their bearish run.

Data Released

November 15th 09:30 AUD Westpac Consumer Confidence (NOV)
November 15th 10:30 AUD Wage Price Index (YoY) (3Q) 2.2%
November 15th 19:30 GBP Average Weekly Earnings (3M/YoY) (SEP) 2.1%
November 15th 20:00 EUR Eurozone Trade Balance (SEP)
November 15th 23:30 USD Consumer Price Index (YoY) (OCT) 2.0%

Post by TorFX

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