Pound Support Fades as UK Enters Fresh Lockdown

Australian Dollar (AUD) Trends Higher on Signs of Labour Market Strength

The Australian Dollar (AUD) strengthened in response to another solid month of growth in the ANZ job advertisements survey, providing evidence of a sustained recovery with the Australian labour market.

While anxiety over the latest European Covid-19 restrictions cast a shadow over the global economic outlook, this failed to drag on AUD exchange rates at this stage.

The Australian Dollar should extend its positive run as long as the finalised December services PMI shows solid expansion on the month.

Pound (GBP) Driven Lower as UK Lockdown Returns

The Pound (GBP) remained under pressure last night as Scotland and England returned to a state of national lockdown.

With the UK set to remain under tighter Covid-19 restrictions until mid-February, the odds of a first quarter economic recovery appear to have slimmed. The risk of further disruption to the already under pressure service sector raises the risk of the economy remaining in a state of slowdown for longer, to the detriment of the Pound.

Confirmation that the services PMI remained in contraction territory in December could see GBP exchange rates kept on the back foot tonight.

Euro (EUR) Slips Ahead of German Inflation Data

The Euro (EUR) fell out of favour with investors in spite of a surprise improvement seen in December’s German unemployment change figure.

Although Germany saw a surprise decline in unemployment last month in spite of forecasts for a slight uptick, the single currency failed to make significant gains. A solid month of Germany retail sales also failed to offer EUR exchange rates a leg up, with markets concerned by the fact that deteriorating Covid-19 conditions point towards the risk of another Eurozone slowdown.

If the German inflation rate remains in negative territory, the Euro may trend lower across the board overnight.

US Dollar (USD) Remains Under Pressure Despite ISM Manufacturing Uptick

The US Dollar (USD) failed to benefit from a better-than-expected ISM manufacturing PMI last night as market risk appetite remained elevated.

Even though the PMI picked up sharply from 57.5 to 60.7 in the final month of 2020, this was not enough to encourage any renewed demand for the US Dollar overnight. While this suggests that the US economy proved more resilient than anticipated in the fourth quarter, the safe-haven asset struggled to find any support in the face of market optimism.

With forecasts pointing towards a weaker reading from December’s ADP employment change figure, the appeal of the US Dollar may diminish further as worries over the labour market’s health persists.

Canadian Dollar (CAD) Strengthens as OPEC+ Disagrees over Potential Production Hike

The Canadian Dollar (CAD) gained some traction after OPEC+ talks saw a surprise suspension over disagreements on a potential February output increase.

With the majority of members reportedly opposing the Russian proposition for a production hike, investors found cause for confidence betting that the current cap could remain in place for longer. This offered a modest boost to the commodity-correlated Canadian Dollar, especially in the face of persistent US Dollar weakness.

Anticipation ahead of the release of Canadian trade and labour market data could see CAD exchange rates struggling to find any further support in the near term.

New Zealand Dollar (NZD) Lifted by Risk-On Trade

The New Zealand Dollar (NZD) continued to trend higher against many of the majors yesterday thanks to persistent market optimism.

While the latest wave of Covid-19 restrictions around the world prompted some concerns among investors, NZD exchange rates kept their positive footing. The mood towards the ‘Kiwi’ also improved thanks to a sharp uptick in the latest Global Dairy Trade price index, which showed a 3.9% increase on the week.

Even so, if the general sense of market risk appetite shows signs of weakening the New Zealand Dollar could lose some of its appeal.

Data Releases

09:00 AUD Services PMI (Dec F) 57.4
20:30 GBP Services PMI (DEC F) 49.9
00:00 EUR Germany Inflation Rate (Dec) -0.3%
00:15 USD ADP Employment Change (Dec) 88,000

Louisa Heath