Pound Softens as UK Consumer Borrowing Slows

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Headlines

  • Contracting Building Approvals and Private Capital Expenditure Kept AUD Under Pressure – Confidence in domestic outlook continues to decline
  • Weaker Consumer Borrowing Weighed Heavily on GBP Exchange Rates – Brexit optimism proved short-lived
  • Steady German Inflation Failed to Boost Euro – Eurozone CPI may still encourage EUR exchange rate rally
  • Canadian Dollar Faltered on Mixed Growth Data – Stagnant monthly GDP weighs heavily on CAD


Australian Dollar

As markets continued to reassess the odds of the Reserve Bank of Australia (RBA) raising interest rates in the coming months this left the Australian Dollar on a weaker footing. The mood of AUD exchange rates soured further on Thursday in response to July’s building approvals data, which showed sharper-than-expected contractions on both the month and the year. A sizable decline in second quarter private capital expenditure also put pressure on the Australian Dollar, suggesting that domestic confidence is declining.

If July’s private sector credit data proves more positive in nature this could offer AUD exchange rates a boost ahead of the weekend.

Sterling

Investors were not impressed by July’s UK net consumer credit and mortgage approvals figures, which both fell short of forecast. With consumer borrowing having slowed to its weakest level since November 2015 the appeal of the Pound declined. Weaker levels of borrowing suggest that households are likely to rein in their spending further in the months ahead, limiting domestic growth. As the initial impact of Michel Barnier’s Brexit comments faded this eroded the momentum of GBP exchange rates overnight.

Any decline in the GfK consumer confidence index may give investors a push to sell out of Sterling this morning.

Euro

While the German consumer price index held steady on the year in August this was not enough to boost the single currency yesterday. Although the headline annual inflation rate remains strong, however, the monthly measure eased to just 0.1%. This suggests that price pressures in the Eurozone’s powerhouse economy are still limited, keeping the Euro on the back foot. A weakening in the Eurozone economic confidence index also put EUR exchange rates under pressure, denting optimism in the economic outlook of the currency union.

Even so, if the Eurozone consumer confidence index remains above the European Central Bank’s (ECB) 2% target the Euro could find renewed support today.

US Dollar

The expected uptick in the US personal consumption expenditure core encouraged the US Dollar to push higher across the board overnight. As price pressures within the US economy remain elevated the odds of further Federal Reserve policy tightening picked back up. Generally positive jobless claims data gave USD exchange rates additional cause for confidence, pointing towards the continued tightening of the US labour market.

However, a dip in the Chicago purchasing manager index may put a dent in demand for the US Dollar as confidence in the economic outlook remains fragile.

Canadian Dollar

As the US and Canada remain locked in trade talks hopes for the NAFTA-replacement agreement diminished on Thursday. Confidence in the Canadian Dollar was also dented by June’s Canadian gross domestic product data, which fell short of forecast on the month. Although the annual growth rate remained solid investors were more concerned by the unexpected stagnation on the month, raising concerns over the underlying health of the domestic economy.

A solid reading from July’s producer price index data could offer CAD exchange rates a rallying point tonight, although the primary focus of markets is likely to remain on US-Canada trade negotiations.

New Zealand Dollar

While the ANZ activity outlook index held steady on the month in August this failed to bolster the appeal of the New Zealand Dollar. NZD exchange rates were instead undermined by a continued decline in the ANZ business confidence index which fell from -44.9 to -50.3. The gloomy nature of the business outlook does not bode well for the health of the New Zealand economy, leaving the ‘Kiwi’ to trend lower against its rivals.

If the ANZ consumer confidence index proves similarly discouraging the New Zealand Dollar is likely to extend its losses today.


Data Released

August 31st 08:00 NZD ANZ Consumer Confidence Index (AUG) 117
August 31st 09:01  GBP GfK Consumer Confidence (AUG) -10
August 31st 11:30 AUD Private Sector Credit (YoY) (JUL) 4.4%
August 31st 19:00 EUR Eurozone Consumer Price Index (YoY) (AUG) 2.1%
August 31st 22:30 CAD Producer Price Index (YoY) (JUL) 5.3%
August 31st 23:45 USD Chicago Purchasing Manager Index (AUG) 64

Post by TorFX

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