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Tue 26 Sep 2017 06:30GMT

Conservative Infighting Rumours Limit Pound Demand, US Dollar Under Pressure as Fed Hike Odds Weaken

Published: 17 Jul at 5 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China,

Pound Sterling
Political jitters weighed down the Pound at the start of the week, with various reports circulating in the media alleging infighting within the cabinet. Coupled with the resumption of formal Brexit negotiations this soured the mood towards Sterling, with investors still wary of the prospect of the UK leaving the EU via the cliff edge. Further volatility is likely for GBP exchange rates tomorrow once June’s consumer price index report is published.

Euro
The appeal of the Euro generally improved in response to the confirmation that the Eurozone core inflation rate had picked up on the year in June. This encouraged some hopes that the European Central Bank (ECB) may continue to shift away from its dovish bias in the coming months, given the concerns that policymakers have expressed over sluggish inflation. Even so, the single currency may struggle to hold onto its gains if the ECB bank lending survey flags up any fresh causes for concern.

US Dollar
Fresh disappointment was in store for the ‘Greenback’ as the Empire manufacturing index proved markedly weaker than forecast. This deterioration in sentiment added to market speculation that the Federal Reserve may be backing away from its more aggressive pursuit of monetary tightening. Worries over the abilities of the Trump administration also hampered the strength of the US Dollar, with confidence in the health of the US economy generally weakening.

Australian Dollar
While China’s second quarter gross domestic product proved stronger than anticipated, boosting global commodity prices as risk appetite improved, this was not enough to shore up the ‘Aussie’. Demand for the antipodean currency was limited in anticipation of the Reserve Bank of Australia’s (RBA) July meeting minutes, which could highlight the continued caution of the central bank. If policymakers prove a little more hawkish in tone, however, the Australian Dollar could rally sharply overnight.

New Zealand Dollar
June’s New Zealand services PMI proved a little disappointing, showing a slight weakening on the month. This left the ‘Kiwi’ lacking in support on Monday, with the upside potential of NZD exchange rates already limited thanks to market speculation that the Reserve Bank of New Zealand (RBNZ) will pursue a more hawkish policy outlook. Confidence in the New Zealand Dollar is likely to remain limited ahead of the second quarter consumer price index data, with a shortfall here set to extend NZD losses.

Canadian Dollar
Even though June’s existing home sales data showed a sharp contraction on the month this was not enough to weaken the ‘Loonie’ across the board. While confidence in the Canadian Dollar remained somewhat limited it was nevertheless able to hold onto a stronger footing against other risk-sensitive currencies. In part this was thanks to an improvement in oil prices, which edged back towards US$49 per barrel after a smaller increase seen in the US rig count.
As of Monday, 17th July 2017, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1374, GBP USD exchange rate was 1.3054, GBP AUD exchange rate was 1.6751, GBP NZD exchange rate was 1.7954, GBP CAD exchange rate was 1.6574, and GBP CNY exchange rate was 8.8372.
Patrick James About Author: (265 Posts)Patrick completed his economics degree just as the global financial crisis struck in 2008. In the intervening years Patrick has made his mark, climbing to a prominent position within a large financial services provider. As part of his role Patrick uses his expertise to advise companies of the best ways to safeguard against currency risk.

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