Sterling Slumps Under Growing Tory Dissent

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Headlines

  • Lower Australian Credit Card Purchases Signalled Weaker Domestic Confidence – Risk aversion keeps ‘Aussie’ under pressure
  • Political Worries Weighed Down Pound – Theresa May’s position looks increasingly vulnerable
  • Tax Reform Doubts Failed to Dent US Dollar – ‘Greenback’ still supported by Fed rate hike bets
  • German Wholesale Prices Disappointed – Euro rally possible on stronger German and Eurozone growth data

Australian Dollar

Lingering disappointment over the Reserve Bank of Australia’s (RBA) downgraded forecasts kept the ‘Aussie’ under pressure on Monday. As September’s credit card purchases figure showed a modest dip on the month this gave investors further reason to sell out of the antipodean currency, suggesting that consumer confidence is weakening. Market risk appetite also generally diminished thanks to disappointing Chinese data, leaving AUD exchange rates to extend their slump.

An uptick in the NAB business confidence index could offer some support to the Australian Dollar this morning, although forecasts point towards a steady reading.

Sterling

Politics dragged the Pound back down, reversing the gains made on the back of Friday’s positive data. Investors were spooked by news that 40 MPs now support a letter of no confidence in Theresa May, with only eight more needed in order to trigger a leadership election. All in all the political situation in the UK looks rather messy, particularly as Boris Johnson and Michael Gove attempted to push for a harder form of Brexit in a leaked letter to the Prime Minister. This did not inspire particular confidence in Sterling.

Further volatility is likely in store for GBP exchange rates on the back of the latest UK consumer price index data.

Euro

While the German wholesale price index stagnated on the month in October the Euro was still able to hold its ground against some of its weaker rivals yesterday. This is unlikely to encourage the European Central Bank (ECB) to adopt a more upbeat outlook in the coming months, with inflationary pressure still proving less encouraging than hoped. The mood towards the single currency was also somewhat dampened by warnings that a hard Brexit could damage Eurozone growth.

Confidence in the Euro could improve, however, in response to today’s raft of third quarter Eurozone gross domestic product reports.

US Dollar

Although doubts remain over the likelihood of the Trump administration’s promised tax reforms materialising before the end of the year the mood towards the US Dollar has remained upbeat. Investors are still confident that the Federal Reserve will raise interest rates at its December policy meeting, limiting the downside potential of USD exchange rates. With general risk appetite also muted there was little reason not to favour the ‘Greenback’ at the start of the week.

If the NFIB small business optimism index also proves encouraging then the US Dollar could make further gains across the board this evening.

Canadian Dollar

In another encouraging signal for the oil market, OPEC raised its forecast for 2018 demand as its production limiting agreement continues to erode the oversupply glut. This optimistic assessment helped to keep a floor under CAD exchange rates, limiting the downside exposure of the commodity-correlated currency. Even so, with US production showing fresh signs of picking up, oil prices still look vulnerable to profit taking.

Any softening in market sentiment may see the Canadian Dollar coming under increased pressure, in the absence of any supportive domestic data.

New Zealand Dollar

Demand for the ‘Kiwi’ remained relatively muted yesterday, with investors still discouraged from favouring the antipodean currency by worries over the policy priorities of the centre-left government. As risk appetite diminished in the wake of poor Chinese data there was nothing to prevent NZD exchange rates from continuing to slide.

With no New Zealand data set for release today the ‘Kiwi’ is unlikely to find any particular rallying points.

Data Released

November 14th 10:30 AUD NAB Business Confidence (OCT) 7
November 14th 17:00 EUR German Gross Domestic Product (YoY) (3Q) 2.3%
November 14th 19:30 GBP Consumer Price Index (YoY) (OCT) 3.1%
November 14th 20:00 EUR Eurozone Gross Domestic Product (YoY) (3Q) 2.5%
November 14th 21:00 USD NFIB Small Business Optimism (OCT) 104

Post by TorFX

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