Pound Hits Four-Month Best as Hopes of Brexit Deal Surge

US-China Trade Talk Optimism Lifts Australian Dollar

Positive signals from Washington as US-China trade talks continued helped to encourage a greater sense of market optimism ahead of the weekend. This offered a fresh boost to the Australian Dollar, even though no imminent resolution to the long-running trade dispute appeared likely at this stage. While investors still expect the Reserve Bank of Australia (RBA) to maintain a dovish bias in the coming months this was not enough to prevent AUD exchange rates from trending higher.

As markets brace for the release of the RBA’s most recent set of meeting minutes, though, the appeal of the Australian Dollar looks set to weaken.

Hopes of Brexit Breakthrough Fuel Significant Pound Gains

Demand for the Pound picked up sharply throughout Friday’s European session as hopes of a potential Brexit breakthrough continued to swell. With UK and EU officials entering fresh ‘tunnel’ negotiations investors were encouraged to pile back into the Pound, sending GBP exchange rates to multi-month highs across the board. Although it remains to be seen whether these latest talks will result in a mutually agreeable deal the mood towards the Pound remained high.

The latest Brexit developments look set to dictate the direction of GBP exchange rates for the foreseeable future.

German Inflation Decline Limits Euro Appeal

Confirmation that the headline German consumer price index had slipped from 1.4% to 1.2% in September kept the Euro on a weaker footing. While no change was expected from the month’s finalised inflation data this slowdown still raises the odds of the European Central Bank (ECB) enacting further monetary loosening before the end of the year.

Another month of falling Eurozone industrial production could put additional pressure on the single currency, as anxiety over the slowing state of the Eurozone economy grows.

US Dollar Fails to Capitalise on Consumer Sentiment Jump

An unexpected improvement in the University of Michigan consumer sentiment index failed to give USD exchange rates a leg up. Even though the index strengthened sharply from 93.2 to 96.0 on the month this positive signal was overshadowed by the general increase in market risk appetite. Increased hopes of an easing in US-China trade tensions left the safe-haven US Dollar under pressure, with investors instead piling into higher-yielding assets.

As long as markets maintain an optimistic outlook support for the US Dollar may prove limited today.

Canadian Dollar Trends Higher on Wage Growth Surprise

The Canadian Dollar pushed higher against most of its rivals after September’s average hourly wages data saw a surprise increase. With wage growth accelerating from 3.8% to 4.3% CAD exchange rates returned to an uptrend, as confidence in the domestic outlook improved. The accompanying unemployment rate showed a similar improvement, tightening from 5.7% to 5.5%, adding to the bullish mood of the Canadian Dollar.

Even so, without the support of fresh Canadian data CAD exchange rates may struggle to hold onto their gains in the near term.

Lacklustre Manufacturing PMI Drags Down New Zealand Dollar

As the manufacturing PMI failed to pick up on Friday, instead holding steady at an underwhelming 48.4, this left the New Zealand Dollar lacking in support. With the manufacturing sector still stuck in a state of contraction there was little cause for confidence in the underlying health of the New Zealand economy. A sharp slowdown in retail card spending also put pressure on NZD exchange rates, as signs continue to point towards a sustained loss of economic momentum.

However, with a stronger showing forecast from the corresponding services PMI the New Zealand Dollar could find a rallying point this morning.

Data Releases

October 14th 07:30 NZD Services PMI (SEP) 54.7
October 14th 19:00 EUR Eurozone Industrial Production (YoY) (AUG) -2.5%

Louisa Heath