Pound Hits Multi-Week Lows Thanks to Deepening Brexit Turmoil

Australian Dollar Supported by Improved Business Confidence Index

The NAB business confidence index bettered expectations in August, clocking in at -8 rather than -18 to signal that sentiment is moving in the right direction.

While business anxiety lingered, this still encouraged demand for the Australian Dollar amid hopes that sentiment could continue to recover. Meanwhile, the Australian Dollar avoided market jitters over the global outlook as risk aversion increases on a souring market mood.

The mood towards the Australian Dollar may sour this morning, however, with forecasts pointing towards a dip in the Westpac consumer confidence index.

Resignation of Senior UK Civil Servant Drives Pound Lower

GBP exchange rates plunged sharply lower overnight as anxiety over UK-EU negotiations continued to ratchet up.

The appeal of the Pound weakened dramatically as the head of the UK’s government legal department resigned in response to Boris Johnson’s apparent plans to row back on existing agreements over the Irish border.

While Brexit talks continue this week surrounded by pessimism over progress, it is likely GBP exchange rates will continue to come under mounting pressure.

Upwardly Revised Eurozone GDP Benefits Euro

Markets received a positive surprise as the Eurozone’s second quarter gross domestic product saw an unexpected upward revision.
While growth remained firmly in negative territory at a record -11.8%, the report still encouraged hopes that the currency union has started to recover from the impact of the Covid-19 crisis. A solid monthly uptick in German export volumes also lent support to EUR exchange rates last night.

However, growing anticipation ahead of Thursday’s European Central Bank (ECB) policy announcement could easily put a dampener on Euro exchange rates.

US Dollar Maintains Bullishness as Safe-Haven Demand Persists

The US Dollar strengthened during Tuesday’s European session as market sentiment soured on worries over rising Covid-19 cases, Brexit and the US election.

The global rise in Covid-19 infections threatens economic recovery, while market anxiety remains elevated as a result of Brexit-based fears, fuelling demand for the safe-haven US Dollar.

As long as investors maintain a risk-off mentality this should keep a floor under USD exchange rates in the days ahead. Meanwhile, the return of US Congress could buoy USD exchange rates if a renewed sense of urgency to agree a new fiscal stimulus package is shown.

Another Day of Oil Weakness Pressures Canadian Dollar

With oil prices experiencing another day of decline, support for the commodity-correlated Canadian Dollar proved generally lacking.

Increasing doubt over future global demand for oil added to the wider degree of market jitters, giving investors more reason to sell out of risk-sensitive assets. The relative strength of the US Dollar also hampered the Canadian Dollar’s ability to hold onto its ground.

While no policy change is expected from the Bank of Canada’s (BOC) September, meeting CAD exchange rates could still see fresh volatility tonight.

New Zealand Dollar Braces for Manufacturing Sales Drop

Risk aversion kept the New Zealand Dollar on the back foot yesterday as markets remained wary of lingering Covid-19 risks.

Meanwhile, in the absence of fresh domestic data bets, that Reserve Bank of New Zealand (RBNZ) policy action is on the way continued to limit the upside potential of NZD exchange rates.

A sharp decline in second quarter manufacturing sales looks set to add to the weakness of the New Zealand Dollar this morning.

Data Releases

September 9th 08:45 NZD Manufacturing Sales (YoY) (Q2) -12%
September 9th 10:30 AUD Westpac Consumer Confidence (SEP) 77
September 10th 00:00 CAD Bank of Canada Rate Decision 0.25%

Louisa Heath

louisa.heath@torfx.com


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