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Markets steer clear of GBP as Hammond and Davis begin Brexit charm offensive

currency-newsMarkets steer clear of GBP as Hammond and Davis begin Brexit charm offensive
Brexit diplomacy was weighing on the pound yesterday, overshadowing positive domestic data.

The pound remains on weak form this morning. GBP/EUR is stuck around opening levels at €1.1293, while GBP/USD has fallen -0.2% to US$1.3484. GBP/AUD is down -0.4% to AU$1.7144, GBP/NZD slipped lower to NZ$1.8733, and GBP/CAD is stuck flat at C$1.6934.

Keep reading to find out what important Bank of England (BoE) publication could create turbulence for the pound today…

What’s been happening?

The pound ended lower versus the euro and US dollar yesterday, with markets reluctant to buy into Sterling until they could learn more about the outcome of a charm offensive launched in Germany by Chancellor of the Exchequer Philip Hammond and Brexit Secretary David Davis.

Although on opposite ends of the spectrum with their views regarding Brexit, the pair have united in an attempt to win support for a post-Brexit trade deal that includes protections for the UK’s financial services industry.

This overshadowed yesterday morning's data slew, preventing the pound from gaining on the back of largely positive industrial, manufacturing, and construction output figures.

Although November's trade deficit unexpectedly widened, the three-monthly and year-on-year figures showed a solid improvement in the shortfall.

Euro jitters were soothed later in the session when the leaders of populist Italian parties such as the 5-Star Movement commented that the nation should remain a part of the Eurozone; fears of an attempt to leave the euro should one of these parties win the general election in March have been weighing on the common currency.

Meanwhile, the US dollar was on largely soft form due to mixed outlooks from Federal Reserve policymakers.

What’s coming up?

Markets will be eagerly waiting today’s results from the latest Bank of England Credit Conditions and Bank Liabilities surveys, which should give a picture of the overall health of the UK financial system.

Markets will be interested to see the impact that a rise in interest rates has had on bank lending, as well as the latest findings on burgeoning consumer credit as households struggle to keep up with rising inflation.

On the data front, the Eurozone will release the year-on-year GDP figures from Germany covering growth in 2017, as well as Eurozone industrial production figures for November.

However, these could be overshadowed by the later release of the European Central Bank (ECB) monetary policy meeting minutes from the December gathering.

Markets will be looking to see whether the Governing Council discussed any further changes to quantitative easing; evidence that confirms this could boost the euro.

US data and developments are less impressive, but the US dollar could still experience a flutter from the latest initial and continuing jobless claims data, as well as a speech on the US economic outlook from Federal Reserve member William Dudley.
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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