• The Pound remains under political pressure

  • Australian Dollar shows slight improvement as GDP data meets expectations

  • Strong improvement on Canadian economy

The rising political turmoil in Europe has had influence on major currencies world-wide. Despite the tensions caused by the trade war waging on between US and China, the US Dollar remains strong and a safe haven currency.
Earlier this week, GBP/USD had tumbled to 1.20 on election speculation, which represented its lowest level since October 2016. However, the Pound recovered as rebel MPs took majority to block the UK from crashing out of Europe on October 31st. That said, Sterling still remains under political pressure which can influence its rate against major currencies.
In terms of data, UK PMI came out worse than expected at 50.6, down from 51.4 in July. This will mainly affect GBP/EUR. Positive figures for Australian Dollar despite weak consumer spending. Strong improvement for the Canadian Dollar as BOC Governor said the economy had outperformed in recent months.


USD remains strong

The USD remains strong as a safe haven currency against the turmoil surrounding Brexit and the US-China Trade tensions. Until either situation is resolved the Dollar should continue to do well.
The Pound has bounced from the early week lows below 1.20 as Parliament voted to try and block no-deal and against Boris Johnson. However, Sterling’s recovery is currently very limited as the possibility of a General Election and a no-deal still remain. Upside, until we have a clear ‘Eureka’ moment on Brexit, it looks likely to be the August high of 1.2300.
EUR/USD hit its almost 2 year low earlier in the week but has subsequently bounced on some mixed data from the US Manufacturing Sector in August. The Euro’s position remains vulnerable with poor data coming out from Germany adding to the general uncertainty around Brexit which has seen the EUR come down to 1.10 versus the Dollar.


Negative UK PMI data affects GBP/EUR

GBP/EUR had fallen to 1.0903 over the last 24 hrs but has since recovered to trade around 1.1080 – only testing this level twice since July.  The main reason for the relief in Sterling resides in Parliament’s win over Boris Johnson. MPs wrested control of parliamentary business away from the government in a vote that saw 21 Conservative MPs rebel.  Pound’s strength is largely due to markets interpreting recent developments as a sign the UK is drifting away from a no-deal Brexit, believing remainders in Parliament will force through a Brexit extension.  Although a momentary uplift, the general sentiment remains the same with Sterling still under severe political pressure.  Data wise, UK Services PMI, which accounts for 80% of the UK economy, came out worse than forecast with 50.6 and down from July’s 51.4.  Although the figure avoids a contraction (anything below 50), concerns of a recession look slightly more likely.  This will only hamper GBP/EUR going forward.  Looking ahead the key focus will once again be Brexit related and how the events unfold in Parliament. 


Australian Dollar shows slight improvement as GDP data meets expectations

The Australian Dollar was riding high against most of its G10 counterparts during the morning session on Wednesday after official data appeared to show the economy recovering its poise in the second quarter, although some analysts say there is trouble ahead and that nascent gains won't last long for the Aussie.
AUD advances after GDP growth meets expectations for second-quarter. But economy only saved from contraction by Government spending and exports. Consumer spending is weak amid serious trade war threats to AU exports. More RBA interest rate cuts and weak AUD key to economic outlook. AUD tipped to lose steam on rising threat to domestic and global growth.


Strong improvement on Canadian economy

The Bank of Canada (BOC) has moved into wait and see mode, focusing on how China/US trade war impacts the economy before deciding on whether to cut interest rates. Along with the Pound, Canadian Dollar is the strongest performer today. They elected to keep rates on hold yesterday as BOC Governor Stephen Poloz said the economy had outperformed in recent months. He does expect a slowdown in the second half of the year but for the moment Canada and US have the highest interest rates amongst the G10. With yesterday’s 3rd defeat for UK PM Boris Johnson, the Pound has seen aggressive buying and that may will continue, particularly if a snap election before October 31st is avoided. Over the last three days, GBP/CAD has rallied 3 cents and looks like it is targeting 1.6320 and on a break there, onto 1.6430. If Boris Johnson’s re-vote on Monday for a pre October 31st snap election is defeated I would expect further upside for GBP.

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