Pound Falters After EU Shoots Down UK Customs Proposal

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  • Easing Global Trade Jitters Benefited Australian Dollar – ‘Aussie’ capitalises on weakening US Dollar
  • Brexit Worries Limited Pound Demand – Chief EU negotiator rejects UK customs proposal
  • Euro Shook Off Disappointing French Growth – Steady German inflation may offer further gains
  • New Zealand Dollar Softened as Consumer Confidence Continued Downtrend – Optimism in New Zealand economy remains lacking

Australian Dollar
Although the second quarter Australian producer price index showed a modest slowdown this was not enough to dent AUD exchange rates heading into the weekend. While signs still point towards price pressures struggling to build within the domestic economy the Australian Dollar continued to push higher against its rivals. This was largely thanks to easing market worries over global trade tensions.
However, if the trade spat between the US and China shows any fresh signs of escalation this could easily return the Australian Dollar to a downtrend.
Confidence in the Pound was dampened by the latest comments from chief EU negotiator Michel Barnier. As Barnier rejected the customs plan set out in Theresa May’s Chequers white paper the prospect of any imminent agreement diminished sharply. May is likely to struggle to find an alternative proposal given the relative fragility of her position and continued pushback from Conservative Brexiteers. With investors still wary of a potential no deal Brexit this left GBP exchange rates on a generally weaker footing.
Sterling could find renewed support this evening, though, if June’s UK consumer credit data encourages bets that the Bank of England (BoE) will raise interest rates on Thursday.
Investors were not impressed to find that the French economy had remained in a sluggish state of growth in the second quarter. As the gross domestic product held steady at 0.2% on the quarter, defying forecasts of an uptick, the appeal of the Euro weakened. Even so, EUR exchange rates soon found a rallying point as the European Central Bank (ECB) Survey of Professional Forecasters revealed an increase in its third quarter inflation forecasts.
If the German consumer price index holds steady on the year this is likely to keep the Euro on a stronger footing today.
US Dollar
Even though the annualised second quarter US gross domestic product showed a strong uptick on the quarter this failed to boost USD exchange rates. Despite growth accelerating 4.1% investors were still inclined to sell out of the US Dollar during Friday’s European session. As this growth was largely driven by tax cuts and consumer spending rather than underlying factors the reaction of markets proved rather muted. A downward revision of the core personal consumption expenditure index also weighed on USD exchange rates.
As forecasts point towards a sharp contraction in pending home sales tonight the US Dollar may struggle to return to an uptrend.
Canadian Dollar
A surprise budget surplus was not enough to shore up the Canadian Dollar ahead of the weekend. Although the modest surplus suggests that the health of the Canadian economy is improving a significant degree of uncertainty continues to hang over the domestic outlook. As recent optimism surrounding the prospect of a positive NAFTA renegotiation faded this limited support for CAD exchange rates.
Any weakness in the oil market may encourage the Canadian Dollar to extend its losses further.
New Zealand Dollar
The ANZ consumer confidence index showed a fresh contraction on the month in July, underlining the less optimistic outlook of the New Zealand economy. This prompted the New Zealand Dollar to slump against its rivals, with investors seeing little cause for confidence at this stage. However, as the US Dollar weakened this helped to limit the losses of NZD exchange rates later in the day.
Unless market risk appetite picks up the New Zealand Dollar is likely to remain under pressure in the near term.

Post by TorFX

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