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August

Pound plummets on Brexit worries

Published: Wednesday 08 August 2018

  • UK house prices up – no help to Pound…
  • Bank of England bumps up interest rates
  • Asia Pacific markets get a boost from China
  • US Dollar still strong
  • New Zealand Dollar movement likely?
  • Australian interest rates going nowhere
  • Euro under pressure from lacklustre data
Pound plummets on Brexit worries

Brexit has bitten the Pound once again. A combination of concerns aired by Bank of England (BoE) Governor, Mark Carney, and UK Trade Minister, Liam Fox, about the implications of no deal, has pushed the Pound down to the lowest rate in a year against the US Dollar, as markets prepare for a steep fall in Sterling in the event of no Brexit deal being reached.

UK house prices up – no help to Pound…
 
Positive housing data was helpless against the ongoing Brexit bullet, as policymakers, politicians and the press all continue to debate the road ahead, while fears of no-deal and what it means intensify. An increase in UK house prices failed to boost the Pound in the face of “Bretoric”, a phrase coined by our own David Johnson. An already stronger US Dollar and improving Euro also contributed to the Pound’s plummet. 
 
Bank of England bumps up interest rates
 
In other big news for Britain last week, the Bank of England raised UK interest rates from 0.5% to 0.75% for the first time in ten years. The central bank spoke of a careful and cautious approach overall, hinting at a programme of small and steady rate increases over time, which did not help support Sterling. However, a number of healthy economic achievements were noted for the UK, such as inflation and wage growth; and continued development of UK businesses here and overseas.  
  
Asia Pacific markets get a boost from China
 
After some disappointing data in recent months, the latest news on China’s imports and exports was positive, with both exports and imports rising well above forecasts. This bodes well for the global economy as a whole, as Chinese economic data is usually a strong indicator of overall economic health. It also helps support the commodity currencies and those countries with close trading ties to China, such as Australia and Japan. It is also welcome news while commodity currencies remain volatile and subject to shocks from ongoing trade war worries.
 
US Dollar still strong
 
The US Dollar, in contrast, weakened slightly on the news of China’s economic prowess, as trade war concerns between China and the US are still in the spotlight, but in a quirk of the currency markets, ongoing trade tensions are actually strengthening the US Dollar against all its important currency partners, owing to the US currency’s safe haven status.
 
The latest oil inventories could have some power to move the US Dollar, but there is not a huge amount of other key North American data on the horizon for the next few days, so we generally expect the US Dollar to remain strong.
 
New Zealand Dollar movement likely?
 
Markets are watching in anticipation for the interest rate decision from the Reserve Bank of New Zealand. While a rate change is not expected, investors are keen to glean clues from the accompanying statement, which should provide a sense of direction for the New Zealand Dollar, and this could mean some movement for the NZD against its major currency pairings.
 
Australian interest rates going nowhere
 
Meanwhile, in Australia, interest rates have remained at the same level of 1.5% once again, now for two years and counting… Market indicators are pointing towards Australia’s central bank maintaining the status quo here for some time to come. This lack of forward momentum weakened the Australian Dollar only slightly, but China’s import-export good news helped balance that. The Australian Dollar also got some support from increasing retail sales, beating the forecasts and highlighting a positive consumer outlook and overall economic performance.
 
Euro under pressure from lacklustre data
 
German economic data – an important benchmark for European economic health – was disappointing this week, as industrial production fell in June and figures came in twice as low as the estimates. Germany also had a shock slide in the trade surplus, which was a surprise, considering forecasts were for growth in advance of 21 billion Euros. This served to weaken the Euro versus the US Dollar, but the single currency remained strong against a stressed Sterling.
 

#WednesdayWisdom
 
Foreign Exchange is a big beast…
 
There’s no escaping the fact that Foreign Exchange (FX) is a volatile market, which is why it can be such a significant risk: but getting to grips with it is essential for both international businesses and individuals who are making international payments.
 
With the right tools in place, you can use exchange rate volatility to your advantage, and mitigate the risks.
 David Johnson, Founding Director, Halo Financial 
 
The value of being prepared
 
In business, good governance requires effective risk management.
 
Doing nothing to protect yourself or your business against exchange rate volatility is a far greater risk…
David Newton, Financial Director, Halo Financial
 
For more information, infographics and the latest currency insights, visit www.halofinancial.com/news