Pound drops as cliff-edge Brexit fears surge

Philip McHugh December 18th 2019 - 2 minute read

  • Pound slides as Conservatives seek to rule out Brexit extension
  • Resilient Eurozone trade shores up euro
  • Negative business confidence keeps¬†New Zealand dollar on the back foot

Softening UK inflation set to extend pound losses
Support for the pound collapsed yesterday as the Conservatives moved to rule out the possibility of any further extension of the current Brexit deadline.
This prompted a sharp spike in fears of a potential cliff-edge Brexit scenario, with markets caught off guard by the fact that a parliamentary majority did not temper Boris Johnson’s hard-line Brexit stance.
Further weakness could be in store for GBP exchange rates this morning as forecasts point towards an easing in the headline UK consumer price index.
With the odds of a Bank of England (BoE) interest rate cut already rising any weakness in the consumer price index could weigh heavily on the pound.
Euro benefits from resilient Eurozone trade data
A surprise widening of the Eurozone trade surplus helped to shore up the euro on Tuesday, suggesting that the impact of global trade tension has proved more limited.
As the surplus swelled to 28 billion confidence in the outlook of the currency union improved, encouraging EUR exchange rates to trend higher.
The appeal of the single currency could diminish this morning, however, if November’s Eurozone consumer price index data points towards weaker inflationary pressure.
With the monthly inflation rate expected to contract -0.3% EUR exchange rates look vulnerable to renewed selling pressure.
Solid third quarter growth may lift New Zealand dollar
Although the ANZ business confidence index improved from -26.4 to -13.2 in December this was not enough to give the New Zealand dollar a boost.
With sentiment still firmly settled in negative territory markets continued to lack confidence in the outlook of the New Zealand economy.
Even so, as forecasts point towards an uptick in the third quarter gross domestic product NZD exchange rates could find a solid rallying point tonight.
Evidence that the New Zealand economy delivered another strong quarter of growth would give investors less incentive to sell out of the New Zealand dollar.
Upcoming Data:
Wednesday, 18th December 2019
09:30 GBP Consumer Price Index
10:00 EUR Eurozone Consumer Price Index
21:45 NZD Gross Domestic Product

Written by
Philip McHugh

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