Pound Under Pressure as Signs of Brexit Price Inflation Begin to Emerge, Euro on Weaker Footing

Published: 13 Oct at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, China, Germany, Ireland,

Pound Sterling
Trade on the Pound has been decidedly volatile on Thursday, with Sterling failing to derive particular support from a better-than-expected RICS House Price Balance. While the domestic housing market showed further signs of recovering from the uncertainty that followed the referendum result investors remained primarily concerned with the unfolding Brexit debate itself. Confidence was discouraged by the news that Tesco and Unilever are at loggerheads over a proposed 10% increase in wholesale prices, something that could precede further inflation within the UK economy.

Euro
Although there was no surprise from the finalised German Consumer Price Index for September this did not offer particular support to the Euro today. Some of this downside pressure stemmed from discouraging Irish inflation data, which offered a reminder that inflationary pressure within the currency union is far from universally positive. This suggests that the European Central Bank (ECB) is unlikely to be in a particular hurry to taper its quantitative easing program, raising the prospect of further policy divergence from the Fed and weighing on the single currency.

US Dollar
Yesterday’s Federal Open Market Committee meeting minutes failed to particularly bolster the ‘Greenback’, despite policymakers having demonstrated an increasing willingness to consider an imminent interest rate hike. Relatively high odds of a December rate move have already been priced into the US Dollar, limited the upside boost from the minutes. Ahead of the weekend greater support for the ‘Greenback’ could come on the back of comments from Fed Chair Janet Yellen, with any particular hawkishness likely to spur investors to pile into the currency.

Australian Dollar
Despite the Australian consumer inflation expectation for October showing an uptick from 3.3% to 3.7% the antipodean currency fell out of favour with investors on Thursday. Largely this was due to a disappointing raft of Chinese data, with fresh worries over the strength of the world’s second largest economy weighing heavily on commodity prices. Should further signs of slowness emerge from tomorrow’s Chinese Consumer Price Index report then the ‘Aussie’ is expected to continue trending lower.

New Zealand Dollar
A bullish New Zealand Manufacturing PMI has helped to keep the ‘Kiwi’ on a stronger footing despite the increase risk aversion of markets. With the domestic economy continuing to demonstrate solid growth investors were encouraged to buy back into the high-yielding currency, even though the odds of an imminent Reserve Bank of New Zealand (RBNZ) interest rate cut remain high. Even so, the New Zealand Dollar is likely to struggle to hold onto its gains in the near term.

Canadian Dollar
Disappointing Canadian New Housing Price Index results were not enough to dent the ‘Loonie’ today, despite the domestic housing market remaining one of the key driver of the economy. The resilience of the Canadian Dollar is attributable to the continued strength of oil, with Brent crude trending above the US$51 per barrel mark. While market hopes are high for oil producers to agree on measures to limit production and support the market any signs of a setback could see the ‘Loonie’ slump sharply.
As of Thursday, 13th October 2016, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1074, GBP USD exchange rate was 1.2242, GBP AUD exchange rate was 1.6181, GBP NZD exchange rate was 1.726, GBP CAD exchange rate was 1.6158, and GBP CNY exchange rate was 8.2354.

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