Pound Falters as UK and EU Brexit Positions Remain Incompatible

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Headlines

  • Australian Dollar Struggled Amid Rising Trade Tensions – Limited risk appetite leaves AUD exchange rates on back foot
  • Brexit Comments Dented GBP Exchange Rates – UK and EU negotiators remain no closer to resolving key issues
  • Underwhelming German Data Continued – EUR shrugged off signs of struggling Eurozone economy
  • Canadian Dollar Pushed Higher on Solid Wage Growth – Markets continue to hope for summer BOC rate hike


Australian Dollar

While Chinese import volumes showed a sharp increase in May this was not enough to keep the Australian Dollar on a stronger footing heading into the weekend. Even though this bodes well for commodity prices and the Australian economy the data was overshadowed by a fresh deterioration in global market sentiment. With the US continuing to deliver protectionist rhetoric and remaining at odds with a number of its key allies the global trade outlook appears less than encouraging. As a result, AUD exchange rates came under renewed pressure.

Unless market confidence picks back up the appeal of the Australian Dollar is likely to remain limited today.

Sterling

Markets were encouraged by the nature of the Bank of England (BoE)/TNS inflation attitudes survey for May, which showed that expectations remained elevated. This could encourage the BoE to raise interest rates sooner rather than later, giving investors fresh incentive to buy into the Pound. However, GBP exchange rates soon lost their footing thanks to comments from chief EU negotiator Michel Barnier, who dismissed the latest UK backstop proposal.

Any widening of the visible trade deficit could put further downside pressure on Sterling this afternoon, with the domestic outlook still looking uncertain.

Euro

A contraction in German export volumes and industrial production weighed on EUR exchange rates on Friday, further undermining confidence in the health of the Eurozone’s powerhouse economy. Investors are increasingly concerned that the economy will not be able to rebound in the second quarter as European Central Bank (ECB) policymakers had assumed. This jeopardises the likelihood of the ECB returning to a monetary tightening bias in the near future.

As investors brace for this week’s ECB policy meeting the Euro may struggle to find any particular upside momentum.

US Dollar

With market risk aversion on the up once again the US Dollar found renewed support, benefitting as investors piled back into safe-haven assets during Friday’s European session. The belligerent rhetoric of the Trump administration still casts some doubts over the future of the US economy, however, with trade relations looking set to sour further. While this was not enough to weigh down USD exchange rates at this stage its position looks a little fragile.

Even so, if the latest consumer inflation expectations reading points higher the US Dollar is likely to remain on a stronger footing.

Canadian Dollar

Although May’s raft of Canadian labour market data proved to be mixed in nature this still encouraged CAD exchange rates to strengthen. While the participation rate showed a surprise decline this was balanced out by a sharp increase in hourly earnings. As wage growth showed fresh signs of improvement investors were encouraged to favour the Canadian Dollar, betting on the prospect of the Bank of Canada (BOC) raising interest rates in the coming months.

Developments in the oil market and trade fears could dent the Canadian Dollar today, though.

New Zealand Dollar

In the absence of any fresh New Zealand data NZD exchange rates still found some measure of support, even in the face of rising global risk aversion. Stronger Chinese trade data helped to offset the impact of increased tensions over trade, limiting the losses of the higher-yielding New Zealand Dollar.

A stronger first quarter manufacturing activity result may encourage NZD exchange rates to extend their gains further this morning.


Data Released

June 11th 08:45 NZD Manufacturing Activity (1Q) 
June 11th 18:30 GBP Visible Trade Balance (APR) -3.6 billion
June 12th 01:00 USD Consumer Inflation Expectations (MAY) 

Post by TorFX

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