Pound Deteriorates as EU Sets Out Post-Brexit Trade Proposals

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Headlines

  • Australian Dollar Shook Off Weaker GDP Data – AUD downside limited despite general market risk aversion
  • Strong Jobs Data Boosted USD Exchange Rates – Worries remain over impact of increasingly protectionist US policy
  • BOC Maintained Cautious Policy Outlook – Canadian Dollar lacks upside momentum as NAFTA worries mount
  • Brexit Continued to Limit Sterling Demand – EU proposals remain at odds with UK position

Australian Dollar

Weaker-than-forecast fourth quarter Australian gross domestic product figures were not enough to keep the Australian Dollar on a weaker footing yesterday. Even though signs continue to point towards the US adopting an increasingly protectionist position on trade, to the detriment of global markets, AUD exchange rates found fresh support. This was largely due to investors having exhausted much of their bearish momentum, with technical support helping to push the ‘Aussie’ away from its lows.

Should January’s trade balance return to a state of surplus as forecast the Australian Dollar should push higher against its rivals today.

Sterling

Confidence in the Pound remained generally lacking overnight, with the latest Brexit developments giving investors little cause for optimism. The publication of the EU’s draft proposals for future trade relations with the UK highlighted the wide gulf that still stands between the two sides. With the prospect of privileged or otherwise frictionless access to the single market diminishing further the appeal of Sterling soured.

With the RICS house price balance expected to show another deterioration on the month GBP exchange rates are unlikely to find any rallying point in the near term.

Euro

Confirmation that the Eurozone gross domestic product had slowed to 0.6% in the fourth quarter left EUR exchange rates on a softer footing. While the currency union still experienced solid growth in the final quarter of 2017 this is unlikely to offer any encouragement to European Central Bank (ECB) policymakers. Worries over the potential damage that a trade war could cause the Eurozone economy also limited demand for the Euro on Wednesday.

If the ECB maintains a relatively cautious view on monetary policy at its March meeting this could see the single currency shed further ground tonight.

US Dollar

Even though the resignation of key White House economic adviser Gary Cohn unsettled markets, raising fears of a further slide into protectionism, the US Dollar soon recovered. An unexpectedly strong increase in the ADP employment change figure prompted USD exchange rates to rally once again, boosting hopes for a strong non-farm payrolls figure. As the US labour market continues to demonstrate signs of tightening the odds of an imminent Federal Reserve interest rate hike remain high.

A solid showing from the latest jobless claims data may give the US Dollar further encouragement, even though political concerns are likely to remain a major headwind.

Canadian Dollar

Bank of Canada (BOC) policymakers maintained a rather dovish outlook at their March policy meeting, keeping the Canadian Dollar on a generally soft footing. The BOC specifically cited concerns over trade in justifying their decision to leave interest rates on hold, with Canada set to suffer the most from a more protectionist US. This is likely to weigh on the domestic outlook for some time, particularly if fears over the future of NAFTA escalate further.

Any weakness within the domestic housing market would give markets fresh reason to shun the Canadian Dollar tonight.

New Zealand Dollar

The general decline in global market risk appetite left the New Zealand Dollar lacking in support on Wednesday, in the absence of any fresh domestic data. With the chances of a global trade war mounting the appeal of the risk-sensitive ‘Kiwi’ was naturally limited, especially as the US Dollar strengthened once again.

NZD exchange rates may find some support, however, if the ANZ truckometer continues to point towards an uptick in inflationary pressure.

Data Released

March 8th 07:00 NZD ANZ Truckometer Heavy (MoM) (FEB)
March 8th 10:01 GBP RICS House Price Balance (FEB) 7.0%
March 8th 10:30 AUD Trade Balance (JAN) 200 million
March 8th 22:45 EUR European Central Bank Rate Decision 0.0%
March 8th 23:30 CAD Building Permits (MoM) (JAN) 1.3%
March 8th 23:30 USD Initial Jobless Claims (MAR 3) 220,000

Post by TorFX

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