Brexit concerns and shop price disappointment drag pound lower

Philip McHugh February 27th 2020 - 2 minute read

  • Doubts over UK inflation outlook pressure pound
  • Strong rebound in US home sales boosts US dollar
  • Oil price recovery lifts Canadian dollar demand

Weaker UK shop price index weighs on pound
February’s British Retail Consortium shop price index fell short of forecast, showing a deterioration of -0.6% on the year rather than the -0.2% expected .
This weaker reading offered further evidence of the fragile nature of UK inflation, increasing the likelihood of the headline consumer price index easing once again in the near future.
While lower shop prices would benefit UK households the implications for the wider economic outlook weighed on GBP exchange rates.
Support for the pound looks set to remain muted as long as investors see reason to fear the next round of UK-EU trade negotiations.
Durable goods orders contraction set to dent US dollar
A strong monthly increase in US new home sales gave USD exchange rates a boost yesterday as confidence in the domestic outlook improved.
The 7.9% surge in sales suggests that the housing market returned to a positive state in January.
However, the US dollar looks set to fall out of favour this afternoon with forecasts pointing towards a sharp dip in January’s durable goods orders reading.
A -1.5% contraction in orders could weigh heavily on USD exchange rates, fuelling bets that consumers are taking a more cautious outlook in the face of weakening global trade conditions.
Fresh Canadian dollar losses forecast on weaker wage growth
The Canadian dollar benefitted yesterday as oil prices rebounded from a one-year low, driven by a smaller-than-expected uptick in US crude inventories.
While market risk appetite remained generally muted in the face of ongoing concerns over the spread and economic impact of Covid-19 this failed to dent CAD exchange rates.
The mood towards the Canadian dollar could easily sour this afternoon, though, if December’s average weekly earnings data proves underwhelming.
Evidence that wage growth faltered at the end of 2019 would give the Bank of Canada (BOC) greater cause for dovishness, to the detriment of CAD exchange rates.
Upcoming Data:
Thursday, 27th February 2020
10:00 EUR Eurozone Business Confidence Index
13:30 CAD Average Weekly Earnings
13:30 USD Durable Goods Orders

Written by
Philip McHugh

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