Pound rebounds despite leaked Brexit analysis

Philip McHugh January 31st 2018 - 2 minute read

Brexit gloom weighed on the pound at first yesterday, but markets quickly recovered and GBP was able to end the day higher versus many of its peers.

The pound is on mixed form so far this morning, with GBP/EUR having slipped just below opening levels to €1.1397 and GBP/USD climbing 0.2% to US$1.4180. GBP/AUD is up 0.3% to AU$1.7532, but GBP/NZD has fallen -0.5% to NZ$1.9195. GBP/CAD is also falling, with a decline of -0.2% taking it down to C$1.7430.

Read on to learn about today’s packed data calendar and the volatility this could cause for GBP exchange rates…

What’s been happening?

The pound took an early morning hit yesterday after a leaked Brexit report prepared for the Cabinet revealed that the government expects each of the three main Brexit scenarios (‘no deal’, ‘access to the single market’, and ‘soft Brexit’) would weaken the UK’s national income.

However, ministers downplayed the significance of this data, stating that it was an unfinished report, and also stressing that it did not include an analysis of the type of Brexit the government is actually trying to secure, which Theresa May hopes will be an entirely bespoke deal.

While GBP/EUR eventually managed to claw its way into gains, the pound’s advance was made harder by the fact that the latest Eurozone data continued to show that the currency bloc economy was performing well.

Although the US dollar received some support from the better-than-expected improvement in US consumer confidence during January, markets were focused on President Donald Trump’s approaching State of the Union Address and the announcement of the latest Federal Reserve monetary policy decisions.

What’s coming up?

There is plenty on the economic data calendar today to keep GBP/EUR and GBP/USD exchange rates on volatile form.

The day’s only UK data was released at midnight, with a sharp uptick in the Lloyd’s business barometer and GfK consumer confidence index offering support for the pound this morning. Whether it will last remains to be seen.

The Eurozone unemployment rate for December and consumer price index figures for January are set for release later this morning. Germany’s inflation data remained soft, so a repeat performance from Eurozone price growth figures could undermine the euro due to the implications for the monetary policy outlook of the currency bloc.

Those interested in the US dollar might not know where to look today. We’ve already had Trump’s State of the Union Address, and the tell-tale ADP employment change figure for January will be released around lunchtime.

Investors like to use the ADP data as a bellwether for the more important and influential non-farm payrolls report (which is always released two days later on the Friday). A poor result here would therefore bode ill for one of the most important data releases the US publishes in terms of influencing Federal Reserve monetary policy.

But, considering the Federal Open Market Committee (FOMC) will announce its latest monetary policy decisions after the London session is closed, markets may overlook everything else and focus on that. They want to see strong signals from the Fed that a rate hike is on the cards in March; USD could weaken significantly if they are disappointed.

Written by
Philip McHugh

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