Pound Bounces Back as BoE Remains on Hold

Australian Dollar Extends Losses on Decline in Export Prices

AUD exchange rates failed to find any support on the back of the fourth quarter Australian export price index, which slumped -5.2% on the quarter. With export prices sliding sharply confidence in the wider performance of the Australian economy weakened. As the spread of the Wuhan coronavirus looks set to put a further dampener on global trade the economy appears vulnerable to a further loss of momentum, leaving the Australian Dollar on the back foot.

While private sector credit growth is expected to remain steady on the year in December this is unlikely to offer AUD exchange rates any real support today.

Unexpectedly Steady BoE Rate Decision Prompts Pound Rally

The Bank of England (BoE) surprised markets by leaving interest rates on hold by a decisive margin. As just two policymakers voted in favour of an immediate rate cut the odds of any future monetary easing appeared to decrease, to the benefit of the Pound, as markets had anticipated a much closer vote. With the BoE expressing cautious optimism over the economic outlook GBP exchange rates rallied strongly across the board.

Another negative month for the GfK consumer confidence index could knock the Pound, however, as worries over the looming shadow of Brexit linger.

Stronger German Inflation Unable to Lift Euro

While the German consumer price index picked up from 1.5% to 1.7% on the year in January this was not enough to drive a EUR exchange rate rally. Investors were more concerned by the sharp dip in the monthly reading, which showed a -0.6% contraction. With inflationary pressure looking set to weaken in the months ahead the chances of any return to European Central Bank (ECB) hawkishness looked limited.

With forecasts pointing towards a minor slowdown in the fourth quarter Eurozone gross domestic product support for the Euro appears on track to weaken further.

2019 US Growth Miss Limits US Dollar Strength

The US economy failed to perform to the White House’s expectations in 2019, delivering a yearly gross domestic product of just 2.3%. This fell some way short of the 3% target set by the Trump administration, limiting the potential for US Dollar gains overnight. Even so, thanks to the Federal Reserve’s continued reluctance to cut interest rates and a prevalent sense of market risk aversion USD exchange rates remained on a generally positive footing.

A weaker personal consumption expenditure core reading could see the US Dollar falter, though, given its role as the Fed’s preferred gauge of inflationary pressure.

Weakening Small Business Optimism Limits Canadian Dollar Appeal

A slight deterioration in the CFIB business barometer index offered investors no real cause for confidence in the Canadian outlook. With small business optimism slipping close to a 12-month low the appeal of the Canadian Dollar naturally weakened. Sliding oil prices added to the bearish mood, meanwhile, as economic disruption in China looks set to limit demand in the coming months.

If the monthly gross domestic product stagnates in November as expected CAD exchange rates are likely to remain on a weaker footing ahead of the weekend.

Underwhelming Export Volumes Dent New Zealand Dollar

Support for the New Zealand Dollar remained limited yesterday in spite of a better-than-expected trade balance figure. The underlying details of the trade report proved less encouraging, with export volumes failing to rise as far as forecast. As confidence in the global growth outlook continued to deteriorate this kept NZD exchange rates under pressure.

A decline in the ANZ consumer confidence index could see the New Zealand Dollar shedding further ground this morning.

Data Releases

January 31st 07:00 NZD ANZ Consumer Confidence Index (JAN) 120
January 31st 10:01 GBP GfK Consumer Confidence (JAN) -9
January 31st 10:30 AUD Private Sector Credit (YoY) (DEC) 2.3%
January 31st 20:00 EUR Eurozone Gross Domestic Product (YoY) (4Q) 1.1%
January 31st 23:30 CAD Gross Domestic Product (MoM) (NOV) 0.0%
January 31st 23:30 USD Personal Consumption Expenditure Core (YoY) (DEC) 1.6%

Louisa Heath