Lacklustre UK Cabinet Reshuffle Leaves Pound Under Pressure

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Headlines

  • Building Approvals Surged 11.7% in November – Australian Dollar fails to benefit due to risk-off sentiment
  • Theresa May’s Cabinet Reshuffle Failed to Improve GBP Outlook – Concerns over strength of the Prime Minister’s position remain
  • Weaker Business Optimism Shrugged Off by Bullish USD Exchange Rates – Investors bet on faster pace of Fed interest rate hikes
  • EUR Lacked Support In Spite of Falling Eurozone Unemployment Rate – Currency union continues to demonstrate solid economic momentum

Australian Dollar

While Australian building approvals unexpectedly strengthened 11.7% on the month in November this failed to particularly boost AUD exchange rates. Even with the domestic housing market showing some strength this was not seen to materially improve the outlook of the wider Australian economy. Investors also dismissed a fresh uptick in the ANZ Roy Morgan weekly consumer confidence index, selling out of the Australian Dollar as the general sense of market risk appetite weakened.

However, a rallying point could be in store for the ‘Aussie’ this morning if the Chinese consumer price index highlights a fresh uptick in inflationary pressure.

Sterling

The British Retail Consortium (BRC) like-for-like sales data for December bettered expectations, maintaining solid momentum of 0.6% over the festive season. Even so, this was not enough to encourage any uptick in demand for the Pound overnight. In part this was due to the fallout of Theresa May’s anticlimactic cabinet reshuffle, which only seemed to serve to emphasise the more limited level of authority that the Prime Minister currently holds.

With a raft of UK trade and production data, as well as the latest NIESR gross domestic product estimate, due for release today GBP exchange rates are set for further volatility.

Euro

In another positive development for the Eurozone economy, November’s unemployment rate fell from 8.8% to 8.7% as the domestic labour market continued to tighten. While this continued the recent positive run of Eurozone data the mood towards the Euro remained decidedly bearish. A better-than-expected widening of the German trade surplus similarly failed to boost EUR exchange rates, with investors still content to brush off the strength of the Eurozone’s powerhouse economy for the time being.

In the absence of any data today the Euro may struggle to find any traction against its rivals, unless market sentiment deteriorates significantly.

US Dollar

Although the NFIB small business optimism index for December showed a surprise slump, sliding from 107.5 to 104.9, USD exchange rates regained further ground overnight. Markets continued to focus on the rather hawkish note struck by Federal Reserve policymakers in their latest comments, with the odds of an imminent interest rate hike rising. While opinion within the Federal Open Market Committee (FOMC) undoubtedly remains divided this was still enough to drive the US Dollar higher.

Even so, if the latest US import and export price index data suggests a weakening in domestic inflationary pressure this could see the US Dollar return to a softer footing tonight.

Canadian Dollar

The latest Canadian housing starts data proved somewhat mixed, with November’s figure revised down before sliding lower in December. This reflects the less robust health of the Canadian housing market, putting fresh pressure on the Canadian Dollar during Tuesday’s European session. While the odds of the Bank of Canada (BOC) raising interest rates next week remains high CAD exchange rates trended lower nevertheless.

If the latest Canadian building permit figure is similarly disappointing the Canadian Dollar is likely to cede further ground to its rivals.

New Zealand Dollar

NZD exchange rates recovered further ground on Tuesday, with markets still favouring the antipodean currency in spite of the general decline in risk appetite. With the New Zealand Dollar still looking oversold after its recent bearish run the potential for further gains remain, in spite of the renewed strength of the US Dollar.

Stronger Chinese inflation data could offer some support to the New Zealand Dollar, although it may still lose out somewhat to the Australian Dollar.

Data Released

January 10th 19:30 GBP Visible Trade Balance (NOV) -10.9 billion
January 10th 23:00 GBP NIESR Gross Domestic Product Estimate (DEC) 0.5%
January 10th 23:30 CAD Building Permits (MoM) (NOV)
January 10th 23:30 USD Import Price Index (YoY) (DEC) 3.0%
January 10th 23:30 USD Export Price Index (YoY) (DEC)

Post by TorFX

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