Pound Slides as May Suggests Three-Month Brexit Delay

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  • Australian Dollar Remains Under Pressure on Stagnant Westpac Leading Index – Tight labour market data could encourage rally
  • UK Inflation Uptick Unable to Shore up Pound – Investors concerned as Theresa May seeks short Brexit extension
  • Canadian Dollar Benefits as US Oil Stockpiles Slump – Lower global supply encouraged oil markets
  • Narrowed Current Account Deficit Fails to Boost New Zealand Dollar – NZD exchange rates vulnerable ahead of fourth quarter growth data

Steady Westpac Leading Index Offers Australian Dollar Little Encouragement

February’s Westpac leading index stagnated on the month, although investors were encouraged by a surprise upward revision to the previous month’s negative reading. With the Australian economy continuing to show signs of sluggishness AUD exchange rates struggled to find any particular momentum. Increasing tensions between the US and China put pressure on the risk-sensitive Australian Dollar, meanwhile, as hopes of a trade agreement began to fade.

This morning’s employment data may give the Australian Dollar a boost, though, if the labour market shows signs of tightening.

Pound Fails to Capitalise on Rising UK Inflation

A surprise acceleration in the UK consumer price index failed to shore up GBP exchange rates last night. Although inflation edged up to 1.9% on the year this disappointed investors, with higher prices cutting into recent wage growth. The Pound also weakened in response to news that Theresa May has only asked for a three month delay to Brexit, dashing market hopes of a longer extension. With EU officials already pushing back against the proposed date the mood towards the Pound quickly soured.

GBP exchange rates may find a rallying point tonight, however, if Bank of England (BoE) policymakers express continued confidence in the economic outlook.

Weaker German Producer Prices Dent Euro

Confidence in the Euro took a fresh blow as February’s German producer price index data fell short of forecast. In a disappointing development producer prices eased on the month, suggesting that inflationary pressure within the Eurozone’s powerhouse economy remains muted. This left the single currency on a weaker footing against its rivals last night, even as market risk appetite generally diminished.

The latest European Central Bank (ECB) Economic Bulletin could weigh heavily on EUR exchange rates if policymakers continue to show signs of increased dovishness.

US Dollar Eased Ahead of Federal Reserve Announcement

As markets braced for the Federal Open Market Committee (FOMC) policy announcement this left the US Dollar under pressure. With the odds of a 2019 interest rate hike having dwindled in recent months investors saw limited incentive to buy into the US Dollar overnight. The weakness of recent US data also weighed on USD exchange rates, with confidence in the outlook of the world’s largest economy declining.

An uptick in tonight’s Philadelphia Fed business outlook index could offer a boost to the US Dollar, however.

US Oil Stockpile Decline Benefits Canadian Dollar

In the absence of any fresh Canadian economic data CAD exchange rates struggled to find direction yesterday. A strong uptrend in oil prices offered support to the commodity-correlated Canadian Dollar, however, as US crude oil inventories dropped sharply on the week. As stockpiles saw a significant drawdown this encouraged investors to take a bullish view, driving oil prices higher on the prospect of falling global supply.

Tonight’s wholesale trade sales figure may help CAD exchange rates gains a stronger footing, provided that sales show a solid acceleration on the month.

Narrowed Deficit Fails to Boost New Zealand Dollar

Although the fourth quarter New Zealand current account deficit narrowed from -6.1 billion to -3.2 billion this was not enough to shore up NZD exchange rates. With trade tensions between the US and China showing signs of picking up the New Zealand economy looks vulnerable to a further deterioration in global trade conditions. As a result, the New Zealand Dollar was biased to the downside yesterday.

A stronger showing from this morning’s fourth quarter gross domestic product data, though, may see NZD exchange rates recover lost ground.

Data Releases

March 21st 08:45    NZD    Gross Domestic Product (YoY) (4Q)    2.5%
March 21st 11:30    AUD    Unemployment Rate (FEB)    5.0%
March 21st 20:00    EUR    European Central Bank Economic Bulletin    
March 21st 23:00    GBP    Bank of England Rate Decision    0.75%
March 21st 23:30    CAD    Wholesale Trade Sales (MoM) (JAN)    0.5%
March 21st 23:30    USD    Philadelphia Fed Business Outlook Index (MAR)    5.0

Post by TorFX

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