Pound exchange rates lifted by Brexit news
Philip McHugh November 21st 2017 - 2 minute read
- GBP riding high before UK budget
- EUR drops on German coalition chaos
- GBP/AUD near 5-month high
Will Brexit speculation help the pound extend gains?
The pound put in a solid start to the week, gaining against all the majors thanks to the latest Brexit news.
Rumours that the UK is prepared to offer a £40bn divorce settlement gave Sterling a lift as acceptance of the exit payment could break the current deadlock and progress UK/EU trade negotiations.
Further GBP support came in the form of an announcement from German business leaders and economists, who said they would lobby EU governments in order to aid the Brexit negotiation process.
Sterling consolidated gains as markets opened on Tuesday but could lose ground before tomorrow’s Autumn Budget announcement if today’s UK public borrowing data provides cause for concern.
Euro outlook darkens on German government concerns
The euro broadly weakened on the news that German coalition talks had broken down amid concerns that the development could lead to a snap election.
Negotiations between Chancellor Angela Merkel, the Green Party and the Free Democratic Party (FDP) broke down, leaving the Eurozone’s largest economy without a working government two months after the election.
If the uncertainty persists, EUR exchange rates could remain on a downtrend for the rest of the week.
RBA comments leave Australian dollar weaker
The GBP/AUD exchange rate strengthened to its best levels in five months as the Reserve Bank of Australia (RBA) undermined demand for the Australasian currency.
The minutes from the RBA policy meeting highlighted concerns about low wage growth and its potential impact on inflation.
According to economist Paul Dales; ‘The RBA has already admitted that underlying inflation will remain below 2% for another two years. If we are right in thinking that it will take longer for wage pressures to emerge, then it may have to conclude that it will miss its inflation target for an extra year. This suggests that interest rate hikes are off the table for 2018 and for most of 2019 too.’
The prospect of interest rates remaining lower for longer is likely to limit demand for the Australian dollar, particularly as the Federal Reserve gears up for its third interest rate hike of 2017.
Upcoming Data
Tuesday, 21 November, 2017
09:30 UK Public Sector Net Borrowing (OCT)
23:00 US Fed’s Yellen speaks at Stern Business School
23:30 AUD Westpac Leading Index (OCT)
Written by
Philip McHugh