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Brexit banter beating Sterling into submission

Published: Wednesday 18 July 2018

  • Encouraging economic data fails to boost the Pound
  • US Dollar dominates
  • Eurozone has a cloud of its own
While the excitement of the World Cup may be over, it has been another tempestuous week for the Pound, with more UK government in-fighting, further parliamentary resignations and of course, Brexit, Brexit, Brexit, which continues to dominate the direction of Sterling. Not to mention the visit to the UK from a certain US president… The Pound has been under pressure from all its key currency pairings, particularly the US Dollar, and is hovering at lows of around 1.30 against the USD, not seen since September 2017.

Encouraging economic data fails to boost the Pound

Economic data for the UK has been broadly positive, but inflation is a sticking point. Slower inflation growth lowers the chances of interest rate hikes and this undermines confidence in the overall UK economy for investors. The markets do not like the uncertainty this creates, reflected in the pressure on the Pound.

Another key factor contributing to Sterling’s troubles is that political uncertainty is still hovering over the British currency like a smog that refuses to clear. Brexit uncertainty prevails, and then there is the additional uncertainty of a UK government divided on crucial policy plans (or lack thereof).
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US Dollar dominates

One of the pesky side effects of global uncertainty has been to push up the US Dollar; despite the US’s protectionist stance against, well, pretty much everyone, and continued international trade war threats; the US Dollar is considered a safe haven currency for investors in times of trouble. Ironic, no?

Recent policymaker statements and economic data releases point to a good picture of the US economy overall, but how international trade and geopolitical factors could affect this strength is just one of the burning questions.

Eurozone has a cloud of its own

The Eurozone is also facing uncertain times, with their own set of political troubles and more warnings afoot from some of the soothsayers. This time, it’s the International Monetary Fund (IMF) voicing concerns about the state of the German economy and, in turn, worries for the future health of the Eurozone economy.

Australian economic confidence improves

In Asia Pacific, Australia has kept their interest rate at record lows once again and they show no signs of increasing that rate any time soon. Business and consumer confidence in Australia have suffered in recent months, as the housing market remains pressured and consumers continue to feel the squeeze. Lower interest rates mean slower economic growth, knocking market sentiment and business expectations. However, the latest consumer confidence released pointed to a boost in confidence to the highest levels for five years. Employment in Australia is also at record highs, further boosting confidence in the economy. Business confidence appears to have settled in the most recent survey, released in July, so the tide may be turning… Read more in our July analysis of the Australian Dollar.

New Zealand Dollar rises unexpectedly

Meanwhile, the New Zealand Dollar has enjoyed an unexpected boost, as the Kiwi rose against major currency partners, the US Dollar and Australian Dollar. The most recent inflation estimate for New Zealand predicts a stronger rise for June 2018, growing the fastest for some seven years, thanks to an impressive increase in housing and utility prices. This is welcome news for the New Zealand currency and has certainly contributed to the NZ Dollar’s newfound strength. The Reserve Bank of New Zealand (RBNZ) may now look to increase interest rates in line with this growth in inflation.

There may be political doom and gloom surrounding us; England may be out of the World Cup, but that’s no reason to feel like Eeyore. There’s still plenty to make you smile. Stacks of sport to follow over the summer, festival season starting, and the sun is still shining – just in time for the school holidays. There’s even another UK Bank Holiday next month. Tigger-tastic!
For more information, infographics and the latest currency insights, visit www.halofinancial.com/news