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Delaying the inevitable?

Published: Friday 29 June 2018

  • UK growth boost supports Sterling strength
  • Financial Stability Report undermines Sterling
  • Dearth of data focuses markets on politics and monetary policy
  • Trade wars only strengthen US Dollar

Delaying the inevitable?
A key theme seems to be emerging from the various reports about Brexit discussions – progress is not moving as fast as anyone would like, and it is becoming increasingly likely that there will be a delay in the day that the UK officially leaves the EU. This uncertainty continues to weigh on the Pound, but some slivers of hope remain in the improved and more positive economic data that is trickling through for the UK.
UK growth boost supports Sterling strength
Today’s Gross Domestic Product (GDP) data showed better than expected growth for the UK; and growth forecasts have duly been revised upwards, leading markets to anticipate an increase in the base interest rate in August. Earlier this month, as the Bank of England’s Monetary Policy Committee (MPC) met, this rate increase looked less and less likely. The Pound fell, as there appeared to be a lack of confidence in the robustness of the UK economy.

Financial Stability Report undermines Sterling
The Pound also suffered after the BoE’s Financial Stability Report and ensuing comments from Governor Mark Carney, highlighting the risks of Brexit and potential effects on the UK economy, particularly its financial services. What a difference a few days makes in the markets – and to the fate of the Pound…
Dearth of data focuses markets on politics and monetary policy
There’s not been a great deal of economic data this week, with markets focusing their attention on central bank speeches and what’s been going on in political discussions, debate, and, well, conflict…which is certainly the case for China and the US as trade demands rage on.
Trade wars only strengthen US Dollar
Trade war fears continue to strengthen as the US and China stand firm and the US sets its sights on trade with the EU. This is sending ripples of uncertainty through global markets and weakening all but the US Dollar, given its safe haven status. US economic growth figures came in lower than expected, along with slightly slower consumer expenditure and employment figures, but as the American economy is enormous and the US Dollar will always remain attractive in times of political uncertainty, it managed to brush this news off.
Euro suffers from disappointing data and political problems
The Euro has weakened following lower German inflation and the political situation in Germany, along with political pressures and protectionist sentiment from prominent EU members, including France and Italy. Considering the reliance of the Eurozone on its major economies, this is a very real concern for both the Euro and the wider European economy.
Market volatility likely
As a key trading day at the end of the month and at the end of the quarter, we may well see more exchange rate movements for the major partners, the Pound, Euro and US Dollar before the day is done.

Canadian Dollar dips
The Canadian Dollar has also suffered following central bank speeches, as the governor of the Bank of Canada Governor Poloz focused on current economic and political uncertainties and how they could affect the Canadian economy. This followed more poor economic data for Canada. More doom and gloom…

New Zealand maintains interest rate level
The New Zealand Dollar fell on poor business confidence results and an expectation that the New Zealand economy is likely to slow, pushing the New Zealand Dollar to its lowest against the Pound for almost two months, despite the New Zealand trade surplus widening. The Reserve Bank of New Zealand (RBNZ) has kept the interest rate the same, with a largely cautious approach to monetary policy, which could spell a further drop for the New Zealand Dollar if there is no data in shining armour to offer a helping hand…

What to watch out for next week…
With political shenanigans, end of quarter and end of month totting up of various figures and reports, there is going to be volatility across the currency markets. The Pound, Euro and the commodity currencies are all in focus for investors, in the face of trade wars, questions about political allegiance, monetary policy, and, of course, economic strength. Just how healthy is the global economy?

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