Pound Bounces Back as Opposition to Internal Market Bill Mounts

Australian Dollar (AUD) Muted as Risk Aversion Returns to Markets

The Australian Dollar (AUD) failed to find much in the way of support at the start of the week as a general sense of risk aversion hung over markets.

After their recent run of gains AUD exchange rates were left lacking in support, particularly as worries over the relative health of the Australian economy lingered in the face of ongoing Covid-19 concerns.

Demand for the antipodean currency could weaken further this morning if the Reserve Bank of Australia’s (RBA) latest set of meeting minutes demonstrate a willingness to remain on hold for longer.

Pound (GBP) Rallies as Domestic Opposition to Internal Market Bill Grows

The Pound (GBP) rebounded on Monday thanks to growing domestic opposition to the controversial Internal Market bill.

Fears over the possibility of UK-EU talks collapsing without a deal temporarily eased in response to the increasing backlash. With political support for the bill seemingly lacking markets were encouraged to price in higher odds of parliament voting it down, a move which could go some way to mending UK-EU relations.

However, the Pound may struggle to hold onto its resurgent gains as forecasts point towards July’s UK unemployment rate picking up from 3.9% to 4.1%.

Euro (EUR) Fails to Benefit from Better-than-Forecast Eurozone Production Figures

The Euro (EUR) saw mixed fortunes as July’s Eurozone industrial production data bettered forecasts in July.

Even so, as production remained in a state of sharp contraction on the year the positive impact of the data proved limited. With the manufacturing sector continuing to show signs of weakness the risk of another negative quarter of growth for the Australian economy remained.

Further losses could be in store for the single currency this evening if the German ZEW economic sentiment index dips from 71.5 to 69.8 as anticipated.

US Dollar (USD) Slides as Safe-Haven Demand Fades

The US Dollar (USD) trended lower across the board yesterday as a stronger performance from stock markets reduced safe-haven demand.

With investors widely confident that the Federal Reserve will leave monetary policy on hold at its latest meeting the potential for US Dollar gains diminished. As even an uptick in inflation is unlikely to alter the current outlook of policymakers rates look set to remain on hold for longer.

Another negative manufacturing production reading could put pressure on the US Dollar this evening as confidence in the resilience of the US economy fades.

Canadian Dollar (CAD) Stumbles Thanks to Mixed Oil Headwinds

The Canadian Dollar (CAD) lacked any particular support yesterday in spite of disruption to US crude production.

Although an impending storm in the Gulf of Mexico disrupted oil production in the region this failed to boost oil prices. With investors still wary of the risk for the global economic recovery to stall, leading to a reduction in demand for oil, the commodity-correlated ‘Loonie’ was left on the back foot.

A stronger month of manufacturing sales may see the Canadian Dollar gain renewed momentum this evening, however.

New Zealand Dollar (NZD) Shakes off Weak Services PMI

The New Zealand Dollar (NZD) managed to push higher against many of the majors in spite of a poor August services PMI.

Although the index dipped from 54.4 to 46.9 in August, falling into contraction territory, this was not enough to put a dampener on the ‘Kiwi’. With the US Dollar on the back foot the New Zealand Dollar was able to capitalise on its rival’s weakness, diminishing the impact of the weak data.

Even so, the New Zealand Dollar may struggle to hold onto its positive trend as market jitters over Covid-19 persist.

Data Releases

11:30 AUD Reserve Bank of Australia Meeting Minutes
16:00 GBP Unemployment Rate (Jul) 4.1%
19:00 EUR Germany ZEW Economic Sentiment Index (Sep) 69.8
22:30 CAD Manufacturing Sales (Jul) 8.7%
23:15 USD Industrial Production (Aug) -6.1%

Louisa Heath