Pound Struggles as Hopes of Imminent Brexit Deal Diminish

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  • Home Loans Contraction Fails to Drag Australian Dollar Down – Risk appetite supports AUD exchange rates
  • May Rejects Suggestion of UK Indefinitely Remaining Within Customs Union – Pound trends lower as hopes of Brexit deal ease
  • New Zealand Dollar on Weaker Footing as Manufacturing Sector Disappoints – Stronger services PMI could prompt rally
  • Improved Eurozone Industrial Production Not Enough to Boost Euro – Single currency remains under pressure from Italian worries

Australian Dollar Shakes Off Home Loans Contraction

While Australian home loans saw a sharp -1.0% contraction on the month in August the Australian Dollar was able to gain ground ahead of the weekend. A general improvement in market risk appetite offered support to AUD exchange rates as investors bet on the hopes of a de-escalation in US-China trade tensions. This limited the negative impact of the day’s domestic data, even though signs point towards weakening confidence within the Australian economy.

Another bout of risk aversion could set the Australian Dollar on a fresh downtrend, however.

Pound Falters as May Rejects Indefinite Customs Union Membership

As a spokesperson for Theresa May pushed back against suggestions that the UK will remain in an indefinite customs union with the EU the mood towards the Pound soured. With MPs still split over the issue this left GBP exchange rates with limited support on Friday. This undermined earlier hopes that the UK and EU could reach an agreement at the start of this week, raising the risks ahead of the latest EU summit.

If the odds of an imminent Brexit deal diminish further today the Pound is likely to come under increased pressure.

Industrial Production Rebound Fails to Push Euro Higher

Although August’s Eurozone industrial production data delivered an unexpectedly strong uptick of 1.0% on the month this was not enough to shore up the Euro. While this improvement suggests that the Eurozone economy is in a more robust state of health investors failed to take encouragement from the data. Worries over the escalating Italian budget dispute continued to hang over EUR exchange rates, with no compromise looking likely in the near future.

However, a solid German import price index may help to limit the bearishness of the single currency this afternoon.

Weaker Consumer Sentiment Weighs on US Dollar

Confidence in the US Dollar remained limited on Friday as markets reassessed the likelihood of the Federal Reserve hiking interest rates again before the end of the year. While investors still expect the Fed to raise rates the weaker nature of the day’s data helped to keep USD exchange rates softened. Particularly disappointing was an unexpected decline in October’s University of Michigan consumer sentiment index which dipped from 100.1 to 99.0.

An increase in advance retail sales could give the US Dollar a boost tonight, with any signs of economic resilience likely to boost the case for greater Fed hawkishness.

Risk Sentiment Bolsters CAD Exchange Rates

The commodity-correlated Canadian Dollar benefitted from the wider improvement in market risk sentiment, in spite of the weaker nature of recent domestic data. While confidence in the underlying health of the Canadian economy remains muted CAD exchange rates still pushed higher during Friday’s European session. With Brent crude holding above the psychologically important US$80 per barrel mark pressure on the Canadian Dollar eased.

Nevertheless, CAD exchange rates remain vulnerable to shifts in the oil market or a wider decline in investor confidence.

Weaker Manufacturing Sector Limits New Zealand Dollar Appetite

A modest easing in September’s New Zealand manufacturing PMI limited the appeal of the New Zealand Dollar, encouraging further jitters over the domestic outlook. With the economy still showing signs of slowness NZD exchange rates struggled to find any support, even as the latest US data disappointed.

Even so, a stronger performance from the corresponding services PMI may give the New Zealand Dollar a leg up this morning.

Data Released

October 15th 08:30 NZD Services PMI (SEP) 54.1
October 15th 17:00 EUR Import Prices (YoY) (AUG) 5.2%
October 15th 23:30 USD Advance Retail Sales (MoM) (SEP) 0.5%

Post by TorFX

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