Pound Slides After UK Growth Disappoints Forecasts with Contraction

Australian Dollar Mixed amid US-China Trade Speculation

The mood towards the Australian Dollar remained generally muted at the start of the week as speculation over US-China trade relations continued. With markets still wary of the prospect of an increase in US tariffs the risk-sensitive AUD struggled to gain any ground against its rivals. Reports that the two sides could still meet before the March deadline saw market risk appetite improve overnight, however.

A steady reading from January’s NAB business confidence index could offer the Australian Dollar a more stable rallying point.

Underwhelming UK Gross Domestic Product Drags on Pound

December’s UK gross domestic product data fell short of forecast to show a surprise -0.4% contraction on the month. This prompted the Pound to trend lower across the board yesterday as confidence in the domestic outlook deteriorated further. With the UK economy looking set to lose further momentum in the months ahead as Brexit-based uncertainty continues to weigh on growth the appeal of the Pound naturally diminished.

Even so, GBP exchange rates could recover some of their losses today as the initial impact of the GDP data fades.

Optimistic ECB Comments Not Enough to Boost Euro

Although European Central Bank (ECB) Vice President Luis de Guindos indicated that inflation is still expected to rise ‘over the medium term’ this failed to give the Euro any significant boost. De Guindos’ less dovish stance is not likely to alter the policy outlook of the central bank, with investors still betting that the ECB will remain on hold for longer. As worries over the prospect of a Eurozone economic slowdown remain this limited the strength of EUR exchange rates further.

With no Eurozone data set for release today demand for the Euro is unlikely to see any particular improvement.

Neutral Fed Bias Fails to Keep US Dollar Under Pressure

With the Federal Reserve looking set to maintain a neutral policy bias in the coming months the upside potential of the US Dollar was muted. Even so, USD exchange rates remained on a solid footing at the start of the week thanks to ongoing worries over the US-China trade dispute. As market jitters persisted this offered support to the safe-haven US Dollar, even in the absence of domestic data.

Tonight’s NFIB small business optimism index could put the US Dollar on the back foot, though, if sentiment shows fresh signs of weakening.

Weak Oil Prices Limit Canadian Dollar Demand

As oil prices continued to slide at the start of the week this limited the strength of the commodity-correlated Canadian Dollar. Rising US oil stockpiles kept the oil market in a bearish mood on Monday, even though OPEC-led production cuts are still expected to limit the odds of a fresh global oversupply glut.

If global trade tensions show any fresh signs of escalation this could drive the Canadian Dollar into a fresh downtrend.

Trade Speculation Supports New Zealand Dollar

Hopes that the US and China could resolve their trade spat before the imposition of fresh tariffs helped to shore up the New Zealand Dollar at the start of the week. Although there are still doubts whether fresh trade talks will be enough to resolve the issue this possibility was nonetheless enough to boost NZD exchange rates in the short term.

A rebound in retail card spending in January may encourage the New Zealand Dollar to strengthen across the board this morning.

Data Releases

February 12th 08:45 NZD Retail Card Spending (MoM) (JAN) 1.4%
February 12th 11:30 AUD NAB Business Confidence Index (JAN) 3
February 12th 22:00 USD NFIB Small Business Optimism (JAN) 103

Louisa Heath

louisa.heath@torfx.com


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