Support for Pound Collapses as Brexit Deal Prompts Cabinet Resignations

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  • AUD Exchange Rates Capitalise on Steady Unemployment Rate – Australian labour market shows fresh signs of tightness
  • Pound Plunges After Resignation of Brexit Secretary – Hopes of imminent Brexit deal fade amid political volatility
  • Canadian Dollar Shrugs Off Home Sales Contraction – Worries over health of Canadian economy remain
  • Euro Falters as Eurozone Trade Surplus Narrows – Evidence of weaker economic growth mounts

Steady Unemployment Rate Boosts Australian Dollar

Investors were pleasantly surprised to find that the Australian unemployment rate held steady at 5.0% in October, in spite of forecasts of an uptick. As this was accompanied by an increase in the participation rate this encouraged greater confidence in the outlook of the domestic labour market, boosting the Australian Dollar. Although November’s consumer inflation expectation reading was less encouraging in nature this was not enough to stop AUD exchange rates gaining ground.

A wider sense of market anxiety could limit the appeal of the Australian dollar ahead of the weekend, however.

Sterling Slumps Amid Brexit Chaos

The Pound saw a dramatic slump against its rivals after Brexit secretary Dominic Raab resigned in protest against Theresa May’s Brexit agreement. As a number of other ministers also delivered resignations a sense of political chaos gripped GBP exchange rates overnight. With talk of a leadership challenge against May brewing and the chances of the deal making it through Parliament diminishing there was little reason to support Sterling. Disappointing UK retail sales data added to the woes of GBP exchange rates, meanwhile.

Brexit developments are likely to keep the Pound under pressure over the course of the day.

Narrowed Eurozone Trade Surplus Weakens Euro

September’s Eurozone trade balance proved discouraging, with the surplus found to have narrowed from 16.8 billion to 13.4 billion on the month. This deterioration highlighted the negative impact global trade concerns have had on the currency union’s economic health. With signs continuing to point towards a sustained slowdown in Eurozone growth the mood towards the Euro soured. Political concerns also put pressure on the single currency as Brexit tensions picked up once again.

Upbeat comments from European Central Bank (ECB) President Mario Draghi may give the Euro a boost tonight.

Weakening Business Outlook Limits US Dollar Appeal

While the latest US advance retail sales showed a better-than-expected uptick of 0.8% on the month this failed to give the US Dollar any particular boost. Investors were more concerned by the sharp dip in November’s Philadelphia Fed business outlook index, which weakened from 22.2 to 12.9. This suggests that sentiment within the US economy remains muted in the wake of the midterm elections, to the detriment of USD exchange rates.

Any weakness in October’s industrial production data could encourage further US Dollar selling heading into the weekend.

Home Sales Contraction Fails to Weigh Down Canadian Dollar

A sharp contraction in Canadian existing home sales highlighted the continued softness of the domestic housing market. As housing is considered a barometer of the state of the wider Canadian economy this softness limited demand for the Canadian Dollar. However, with the US Dollar on the back foot CAD exchange rates were still able to make some gains thanks to market risk appetite. With oil prices pushing higher this alleviated some of the previous pressure on the Canadian Dollar.

Any rebound in Canadian manufacturing sales on the month may give CAD exchange rates an additional boost.

New Zealand Dollar Benefits From Risk Appetite

With the US Dollar on the back foot the New Zealand Dollar was able to push higher across the board yesterday. An increased sense of market risk appetite kept NZD exchange rates on an uptrend even in the absence of fresh domestic data. While worries remain over the outlook of the New Zealand economy demand for the New Zealand Dollar still picked up.

Some weakness could be in store for NZD exchange rates, however, if this morning’s manufacturing PMI fails to show an uptick in sector growth.

Data Released

November 16th 08:30 NZD Manufacturing PMI (OCT) 51.3
November 16th 19:30 EUR European Central Bank President Draghi Speaks 
November 17th 00:30 CAD Manufacturing Sales (MoM) (SEP) 0.1%
November 17th 01:15 USD Industrial Production (MoM) (OCT) 0.2%

Post by TorFX

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