Pound Plunges as May Admits Brexit Impasse

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  • Australian Dollar Lacks Momentum in Absence of Domestic Data – Global market jitters limit ‘Aussie’ appeal
  • GBP Exchange Rates Slump After Theresa May Announces Brexit Impasse – Rising threat of no-deal Brexit dents Sterling demand
  • US Dollar Shakes Off Weaker Service Sector Performance – Markets remain confident in US economic outlook
  • Weaker Inflation Limits Canadian Dollar Appeal – Easing consumer price index limits incentive for BOC policy action

Trade Worries Limit Australian Dollar Momentum

Demand for the Australian Dollar diminished on Friday, with domestic figures lacking from the data calendar once again. Persistent global trade tensions continue to limit the upside potential of AUD exchange rates, especially as the US Dollar recovered some of its previous strength. This left the Australian Dollar on a weaker footing against many of the majors as investors saw little incentive to buy into the antipodean currency.

AUD exchange rates are unlikely to find any particular support today as no fresh Australian data is scheduled for release.

Brexit Impasse Prompts Pound Slump

After EU leaders publically rejected the Chequers proposals the mood towards the Pound soured. A sharp slump ensued for GBP exchange rates after Theresa May announced that talks have reached an impasse on Friday. This latest stalemate significantly raised the risk of a no-deal Brexit, driving the Pound down against its rivals as investors piled out of the currency. With the UK looking increasingly at risk of crashing out of the EU in March 2019 confidence in the domestic outlook is unlikely to pick up again in the near term.

With forecasts pointing towards a dip in the CBI industrial orders data for September the Pound may struggle to find any support today.

Mixed Eurozone PMIs Weigh on Euro Demand

September’s raft of Eurozone manufacturing and services PMIs proved something of a mixed bag, leaving the Euro on a weaker footing. Investors were not impressed to find that the manufacturing sector had lost further momentum on the month, even though the index remained within expansion territory. As Brexit risks escalated once again this dragged on EUR exchange rates, with the Eurozone also likely to suffer in the event of a no-deal Brexit.

A softening of the German IFO business climate index may drive the single currency lower against its rivals this evening.

Disappointing US Service Sector Growth Fails to Prevent US Dollar Rebound

Although the US services PMI proved much weaker than forecast in September this was not enough to keep USD exchange rates under pressure. Demand for the safe-haven currency picked up in response to wider market jitters, recovering from a muted week of trading. Confidence in the underlying health of the US economy was also supported by a solid uptick in September’s manufacturing PMI, which suggests that trade tensions are not particularly weighing on the sector at this stage.

A weaker Chicago Fed national activity index could still knock the wind out of the US Dollar overnight, however.

Weaker Canadian Inflation Rate Diminishes Odds of BOC Action

As the annual Canadian consumer price index fell back from 3.0% to 2.8% this limited the appeal of the Canadian Dollar heading into the weekend. This weaker showing is likely to encourage the Bank of Canada (BOC) to leave interest rates on hold for longer, disappointing investors. A modest rebound in monthly retail sales limited the vulnerability of CAD exchange rates, however, as the domestic economy showed fresh signs of resilience.

If July’s wholesale trade sales show a similar rebound on the month this may encourage the Canadian Dollar to strengthen.

NZD Exchange Rates Benefit From Rising Credit Card Spending

A sharp acceleration in New Zealand credit card spending gave NZD exchange rates a boost on Friday, suggesting that a greater sense of optimism exists among domestic consumers. The 7.7% increase in spending on the year in August helped to diminish fears that the Reserve Bank of New Zealand (RBNZ) is on track to cut interest rates in the coming months. As a result, the ‘Kiwi’ recovered ground even as USD exchange rates picked back up.

Even so, another escalation in global trade tensions could see the New Zealand Dollar come under renewed pressure.

Data Released

September 24th 18:00 EUR German IFO Business Climate (SEP) 103.0
September 24th 20:00 GBP CBI Industrial Trends Orders (SEP) 5
September 24th 22:30 CAD Wholesale Trade Sales (MoM) (JUL) 0.2%
September 24th 22:30 USD Chicago Fed National Activity Index (AUG) 0.02

Post by TorFX

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