Pound Fluctuates After OBR Significantly Lowers UK Economic Forecasts

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Headlines

  • Jump in Construction Work Failed to Boost ‘Aussie’ – AUD exchange rates to remain sluggish in absence of domestic data
  • 2017 UK Budget Delivered Mixed Bag – Pound dented as OBR revised down its economic forecasts
  • Eurozone Consumer Confidence Surged Higher – Euro rates recovered some ground on greater domestic optimism
  • Weak Durable Goods Orders Extended USD Losses – ‘Greenback’ strength limited over Thanksgiving holiday

Australian Dollar

The Westpac leading index showed a slight dip in October, falling from 0.14% to 0.13% as the domestic economy continues to struggle to find any particular momentum. Naturally this kept the Australian Dollar on a weaker footing on Wednesday, even though the latest construction work data showed a 15.7% leap on the quarter. All in all, confidence in the Australian outlook remains rather limited at this juncture.

With no fresh domestic data set for release ahead of the weekend the ‘Aussie’ is likely to remain under pressure unless market risk appetite picks up significantly.

Sterling

Reaction to the 2017 UK Budget was rather volatile, with markets taking time to digest the various details of the announcement. Any positivity, though, was largely overshadowed by the downwards revisions to the Office for Budget Responsibility’s (OBR) various forecasts. As both economic growth and wages are expected to take a much slower trajectory over the coming years the mood towards the Pound soured.

Any change to the second estimate of the third quarter UK gross domestic product data could provoke further volatility for GBP exchange rates this evening.

Euro

Politics remained a headwind for the Euro yesterday, as the prospect of fresh German elections continues to dampen the moods of investors. However, as the Eurozone consumer confidence index unexpectedly surged back into positive territory this helped the single currency to find some support. With the index reporting its first positive reading since January 2001 this suggests that a sense of optimism is returning to the currency union.

Today’s raft of Eurozone manufacturing and services PMIs may encourage further demand for the Euro, with forecasts pointing to another solid month of expansion.

US Dollar

It was a rather mixed picture in terms of US data overnight, with an upwards revision of the University of Michigan confidence index contrasted by a sharp contraction in durable goods orders. Even so, none of this is likely to materially alter the odds of the Federal Reserve sticking to its earlier guidance and raising interest rates one more time in December. Nevertheless, the surprise fall in goods orders still prompted the US Dollar to trend lower against its rivals.

As US markets go quiet for the Thanksgiving holiday the ‘Greenback’ is likely to remain biased to the downside.

Canadian Dollar

Another weekly drawdown in US crude oil stockpiles offered encouragement to CAD exchange rates, keeping oil prices on a bullish footing. While questions remain over the future of the global oil market, given doubts over the likelihood of a further extension of the OPEC-led production cuts, this was still a solid boost to market confidence. A weaker US Dollar also helped to bolster the Canadian Dollar, increasing the appeal of the higher-yielding currency further.

With Canadian retail sales forecast to have rebounded strongly on the month in September CAD exchange rates could extend their gains further.

New Zealand Dollar

In spite of a lack of major economic data the New Zealand Dollar was still able to make some gains on the back of increased market risk appetite. Softening USD exchange rates encouraged investors to buy into the antipodean currency once again, even as worries over the domestic outlook persist. Even so, the ‘Kiwi’ lacked the momentum to trend higher across the board.

If the third quarter New Zealand retail sales figure shows a slowdown in consumer spending, however, this may see NZD exchange rates returning to a uniformly bearish trend.

Data Released

November 23rd 07:45 NZD Retail Sales ex Inflation (QoQ) (3Q) 0.1%
November 23rd 18:30 EUR Eurozone Manufacturing PMI (NOV) 58.2
November 23rd 18:30 EUR Eurozone Services PMI (NOV) 55.2
November 23rd 22:30 EUR European Central Bank Meeting Minutes
November 23rd 23:30 CAD Retail Sales (MoM) (SEP) 1.0%

Post by TorFX

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