Pound Under Pressure as Forecasts Point Towards Weaker UK Inflation

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  • Uptick in NAB Business Confidence Index Supports AUD Exchange Rates – Weaker consumer confidence may reverse Australian Dollar gains
  • Pound Softens Ahead of UK Consumer Price Index Data – Easing inflationary pressure to encourage GBP selling
  • RBNZ Policy Meeting Anticipation Weighs on New Zealand Dollar – Markets wary of fresh dovish signals
  • Euro Under Pressure as ECB Policymakers Step Away from Hawkishness – Monetary policy looks set to remain on hold for longer

Improved Business Confidence Shores up Australian Dollar

January’s NAB business confidence index bettered forecasts yesterday, offering a boost to AUD exchange rates. Although the index only inched up from 3 to 4 on the month this was still enough to encourage a greater sense of optimism among investors. While Australian home loans continued to contract, slumping -6.1% in December, this failed to prevent the Australian Dollar trending higher. Hopes of progress towards a US-China trade agreement also supported the risk-sensitive AUD.

Unless the Westpac consumer confidence index shows an improvement on the month, though, the Australian Dollar could return to the back foot today.

Pound Under Pressure Ahead of Inflation Data

Comments from Bank of England (BoE) Governor Mark Carney were not enough to shore up the Pound overnight. As Carney offered a fresh warning over the outlook of the UK economy and the uncertainty stemming from Brexit this left GBP exchange rates on a softer footing. Even though Carney remains optimistic that the UK will avoid leaving the EU without a deal in March the mood towards the Pound still soured.

Tonight’s UK consumer price index data could see the Pound extending its slump if the headline inflation rate falls back to 2% as forecast.

Dovish ECB Signals Weigh Heavily on Euro Exchange Rates

As European Central Bank (ECB) policymakers continued to offer dovish signals this kept the Euro under a degree of pressure. Previously hawkish members of the Governing Council suggested that the central bank should adopt a more gradual pace towards normalising monetary policy. This further diminished the odds of the ECB raising interest rates before the end of 2019, leaving the single currency on a weaker footing against its rivals.

Another contraction in Eurozone industrial production looks set to diminish the appeal of the single currency further this evening.

Underwhelming Small Business Optimism Index Limits US Dollar Upside

USD exchange rates faltered in the wake of a weaker-than-expected NFIB small business optimism index, which slipped from 104.4 to 101.2 in January. While this suggests that confidence within the US economy has deteriorated further, however, the US Dollar still took encouragement from reports that a second government shutdown had been averted. With the political deadlock apparently broken the mood towards the US Dollar naturally improved, even in the face of market risk aversion.

Overnight, USD exchange rates could lose further ground if January’s inflation data weakens as anticipated.

Canadian Dollar Benefits as Oil Recovers from Two-Week Low

Reports that Saudi Arabia plans to implement further oil production cuts saw the Canadian Dollar strengthen, pushing higher as oil prices picked up once again. As oil improved from its two-week low, benefitting from the Saudi move as well as increased hopes of a US-China trade agreement, this gave CAD exchange rates a solid boost. Even though the oil price remains low by historical standards this was still enough to shore up the commodity-correlated Canadian Dollar.

Any souring in market risk appetite, though, could see CAD exchange rates slump sharply in the days ahead.

New Zealand Dollar Trends Lower in Anticipation of RBNZ

A solid rebound in the ANZ truckometer offered support to the New Zealand Dollar yesterday, with signs pointing towards a stronger domestic economy. Although this was coupled with solid retail card spending figures, however, NZD exchange rates soon came under renewed pressure. Mounting anticipation ahead of the Reserve Bank of New Zealand’s (RBNZ) policy decision undermined the appeal of the New Zealand Dollar.

Signs of increasing dovishness within the RBNZ could see NZD exchange rates extending their downtrend further this afternoon. 

Data Releases

February 13th 10:30    AUD    Westpac Consumer Confidence Index (FEB)    99.2
February 13th 12:00    NZD    Reserve Bank of New Zealand Rate Decision    1.75%
February 13th 20:30    GBP    Consumer Price Index (YoY) (JAN)    2.0%
February 13th 21:00    EUR    Eurozone Industrial Production (YoY) (DEC)    -3.2%
February 14th 00:30    USD    Consumer Price Index (YoY) (JAN)    1.5%

Post by TorFX

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