Rising UK Living Costs Send Pound into Reverse

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Headlines

  • Dovish RBA Minutes Forecast to Dent Australian Dollar – AUD exchange rates to suffer if policymakers adopt less optimistic outlook
  • GBP Exchange Rates Weighed Down by Falling UK Household Finances – Rising inflation limits consumer spending
  • Oil Market Rebound Failed to Boost CAD – Weaker wholesale sales could extend losses further
  • New Zealand Dollar Slipped Despite Solid Services PMI – Market risk aversion limits NZD potential

Australian Dollar

With the US market closed for President’s Day the Australian Dollar was able to make modest gains against some of its rivals, benefitting from the calmer mood of global stock markets. However, the appeal of the antipodean currency was still somewhat limited thanks to the lingering negative impact of last week’s underwhelming jobs data. Mounting anticipation for the release of the Reserve Bank of Australia’s (RBA) February meeting minutes also gave investors some pause at the start of the week.

If the minutes echo Governor Philip Lowe’s recent dovish comments then AUD exchange rates are likely to slump this morning.

Sterling

As the IHS Markit Household Finance Index pointed towards a further erosion of household finances the mood towards Sterling soured. With February seeing the strongest rise in living costs in 12 months the outlook for the UK consumer does not appear overly positive at this juncture. Unless the long-running squeeze on wages starts to ease more substantially in the coming months the UK economy looks set to suffer as a result of weaker consumer spending.

A decline in the CBI industrial trends orders figure may put further pressure on the Pound tonight.

Euro

December’s Eurozone construction output data failed to impress on Monday, leaving the Euro with limited support. Investors were also discouraged by reports from the day’s Eurogroup meeting, which suggested that Greece would not receive its latest raft of bailout funds at this stage. Even though confidence in the outlook of the Hellenic Republic remains relatively high this temporary setback was enough to leave EUR exchange rates on a narrow trend.

With forecasts pointing towards a dip in the latest ZEW economic sentiment surveys, though, the Euro could lose ground today.

US Dollar

The holiday closure of US markets did not prevent the US Dollar from recovering ground at the start of the week. Fresh speculation over the prospect of a trade war between the US and China helped to support USD exchange rates, diminishing demand for higher-yielding currencies. The solid uptick seen in the University of Michigan confidence index ahead of the weekend also helped to boost the appeal of the US Dollar.

So long as market risk appetite remains muted USD exchange rates should remain supported in the near term.

Canadian Dollar

Demand for the Canadian Dollar remained generally weak yesterday, continuing to feel the impact of Friday’s unimpressive contraction in manufacturing sales. Even though oil markets staged a solid recovery, with Brent crude pushing back above US$65 per barrel, this failed to galvanise support for CAD exchange rates. With concerns over rising US oil output likely to persist oil prices continue to look vulnerable to another reversal.

The Canadian Dollar could lose further ground if tonight’s wholesale trade sales figure offer another disappointment.

New Zealand Dollar

While January’s services PMI remained firmly within expansion territory this failed to shore up NZD exchange rates. A slight dip from 56 to 55.8 on the month did not give investors significant cause for confidence, especially as the wider sense of market risk appetite eased. With policy divergence between the Fed and the Reserve Bank of New Zealand (RBNZ) looking set to widen further the appeal of the New Zealand Dollar remained limited.

Any loss of momentum in the fourth quarter producer price index may dent NZD exchange rates further.

Data Released

February 20th 07:45 NZD Producer Price Index Output (QoQ) (4Q)
February 20th 10:30 AUD Reserve Bank of Australia Meeting Minutes
February 20th 20:00 EUR ZEW German Economic Sentiment Index (FEB) 16.0
February 20th 21:00 GBP CBI Industrial Trends Orders (FEB) 10
February 20th 23:30 CAD Wholesale Trade Sales (MoM) (DEC) 0.4%

Post by TorFX

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