Pound Boosted by Hopes of Brexit Breakthrough

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  • Retail Sales Acceleration Not Enough to Boost Australian Dollar – Decline in market risk appetite limits ‘Aussie’ potential
  • Pound Strengthens on Reports of Irish Support for Brexit Customs Plan – Hopes of progress towards a deal shore up GBP exchange rates
  • Euro Remains on Back Foot in Spite of Higher German Producer Prices – Italian worries continue to hang over Eurozone outlook
  • US Unemployment Rate Hits 49-Year Low – US Dollar remains on stronger footing

Australian Dollar Fails to Benefit From Retail Sales Growth

August’s Australian retail sales data showed a solid uptick on the month, picking up 0.3% after July’s stagnation. However, this failed to give AUD exchange rates any particular momentum ahead of the weekend as market risk aversion weighed heavily on demand. The latest signs of a tightening US labour market boosted the odds of the Federal Reserve raising interest rates before the end of the year, leaving the commodity-correlated Australian Dollar on the back foot.

Unless market sentiment improves AUD exchange rates are likely to remain biased to the downside today.

Irish Support for May’s Customs Plan Shores up Pound

A surprise -1.4% contraction in September’s Halifax house price index failed to weigh the Pound down on Friday. As this housing market data is of a more volatile nature the impact on GBP exchange rates proved limited, with investors still relatively confident in the current health of the UK economy. Reports that Ireland is prepared to support Theresa May’s new customs proposals encouraged Sterling to extend its gains across the board, meanwhile.

Continued signs of progress towards a Brexit deal should keep GBP exchange rates on a stronger footing for the time being.

Rising German Producer Prices Fail to Bolster Euro

While the German producer price index unexpectedly picked up in August the mood towards the Euro remained bearish. Even though the Eurozone’s powerhouse economy continues to show signs of greater price pressures the odds of increased European Central Bank (ECB) hawkishness still look slim. Persistent worries over Italy and its government’s defiant tone over its budget plans limited the appeal of the single currency, with the threat of a fresh Italian debt crisis still lingering.

If August’s German industrial production data shows a rebound on the month this may offer the Euro some support this afternoon.

US Dollar Continues to Dominate as Unemployment Hits 49-Year Low

A disappointing headline non-farm payrolls figure contrasted a larger-than-forecast dip in the US unemployment rate on Friday. As US unemployment fell to a 49-year low of 3.7% the mood towards the US Dollar picked up, encouraged by continued signs of a tightening labour market. This fuelled bets that Fed policymakers will opt to raise interest rates again before the end of the year, boosting USD exchange rates. An easing in average hourly earnings was not enough to dent this uptrend.

In the absence of any fresh US data today the US Dollar may struggle to hold onto a bullish trend, unless market sentiment continues to sour.

Decline in Earnings Keeps Canadian Dollar Under Pressure

Canadian data continued to disappoint ahead of the weekend as September’s hourly earnings figure saw a surprise decline, slowing from 2.6% to 2.2% on the year. This suggests that domestic wage growth is weakening, in spite of the corresponding improvement in the unemployment rate. Weaker wages could well discourage the Bank of Canada (BOC) from considering any further tightening of monetary policy in the months ahead.

If the oil market can stage a recovery this week the mood towards the Canadian Dollar could pick up once again.

Fears of Fed Interest Rate Hike Limit NZD Demand

The prospect of a widening policy gap between the Federal Reserve and the Reserve Bank of New Zealand (RBNZ) weighed heavily on the New Zealand Dollar last week. In the absence of market risk appetite NZD exchange rates were left to trend lower in response to the latest US labour market data, lacking any support from domestic data.

Demand for the New Zealand Dollar is unlikely to recover in the near future as confidence in the health of the domestic economy remains lacking.

Data Released

October 8th 16:00 EUR German Industrial Production (MoM) (AUG) 0.4%

Post by TorFX

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