Pound Softens as BoE Issues Warning Over Limited Business Brexit Preparedness

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  • Weaker Capital Expenditure Fails to Limit Australian Dollar Demand – AUD benefits from signs of less hawkish Fed
  • US Dollar Under Pressure as Fed Looks Set to Take More Gradual Tightening Pace – Investors disappointed by prospect of less interest rate hikes
  • Bank of England Brexit Analysis Encourages Pound Selling – Markets continue to speculate over fate of May’s Brexit agreement
  • Euro Strengthens on Surprise German Unemployment Rate Dip – Signs point towards softening Eurozone inflation

Australian Dollar Shrugs Off Private Capital Expenditure Contraction

A fresh contraction in Australian private capital expenditure during the third quarter was not enough to weigh down AUD exchange rates yesterday. Although the continued decline in expenditure suggests a greater sense of caution among Australian businesses markets maintain a sense of optimism over the domestic outlook. Speculation that the Federal Reserve may not raise interest rates much further offered a boost to the Australian Dollar, meanwhile, as investors awaited the latest set of Fed meeting minutes.

A steady showing from October’s private sector credit data should keep AUD exchange rates on a positive footing today.

Pound Softens After BoE Brexit Analysis

The latest Bank of England (BoE) Brexit analysis left the Pound under pressure as Governor Mark Carney warned that half of UK businesses are not prepared for the possibility of a no-deal Brexit. This encouraged investors to pile out of Sterling yesterday, even as the BoE signalled support for Theresa May’s Brexit plan. As it remains to be seen whether the proposed agreement will make it through Parliament GBP exchange rates struggled to find any upside support.

Speculation over Brexit is likely to continue dominating the mood towards the Pound heading into the weekend.

Tightening German Labour Market Supports Euro

A surprise improvement in the German unemployment rate offered a boost to the Euro overnight. As the unemployment rate dropped from 5.1% to 5.0% in November this encouraged greater confidence in the underlying health of the Eurozone’s powerhouse economy. However, the positive impact on the single currency was limited thanks to a weaker-than-expected German consumer price index reading. With the headline annual inflation rate easing from 2.5% to 2.3% the appeal of the Euro diminished.

If the Eurozone inflation rate shows a similar easing on the year this could see EUR exchange rates come under additional pressure tonight.

Underwhelming Inflation Signals Dent US Dollar

Demand for the US Dollar weakened in the wake of October’s personal consumption expenditure core data, which proved softer than forecast. Investors were not impressed to find that inflationary pressure had unexpectedly eased from 1.9% to 1.8% on the year. This weaker showing added to speculation that the Federal Reserve may not raise interest rates much further in the coming year, leaving USD exchange rates on the back foot.

Even so, an uptick in the latest Chicago PMI may see the US Dollar recover some ground overnight.

Canadian Dollar Under Pressure Ahead of GDP Data

While the third quarter Canadian current account deficit narrowed further than forecast this was not enough to give CAD exchange rates any major boost. Worries remain over the outlook of the Canadian economy, even with the current account showing signs of improvement. With Brent crude still trending below US$60 per barrel the appeal of the commodity-correlated Canadian Dollar remained limited.

Further weakness could be in store for CAD exchange rates tonight if September’s gross domestic product eases as forecast.

Negative Business Confidence Weighs Down New Zealand Dollar

Although November’s ANZ business confidence index held steady on the month the measure remained firmly in negative territory. This kept the New Zealand Dollar under pressure yesterday, even as the accompanying activity outlook index showed a modest improvement. With confidence in the health of the New Zealand economy still generally limited NZD exchange rates struggled to gain any traction.

Unless November’s ANZ consumer confidence index strengthens the New Zealand Dollar is likely to see lose further ground this morning.

Data Released

November 30th 08:00 NZD ANZ Consumer Confidence Index (NOV) 
November 30th 11:30 AUD Private Sector Credit (YoY) (OCT) 4.6%
November 30th 18:00 GBP Nationwide House Price Index (YoY) (NOV) 1.7%
November 30th 21:00 EUR Eurozone Consumer Price Index (YoY) (NOV) 2.0%
December 1st 00:30 CAD Gross Domestic Product (YoY) (SEP) 2.3%
December 1st 01:45 USD Chicago Purchasing Manager Index (NOV) 58.1

Post by TorFX

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