Exchange Rate Forecast: GBP, EUR, USD, AUD, CAD, NZD18 December 2017 by FC Exchange
GBP – May and Cabinet begin to outline what Brexit will really look like
– UK inflation edged a little higher last week, coming in at 3.1% on the year in November, rather than remaining at 3.0% as forecast. November’s number is almost the highest figure for six years.
– The pound was able to gain support from UK wage growth data which came in at 2.5% on the year – a leap higher from the 2.3% previously seen.
– UK unemployment levels defied forecasts to decrease to 4.2% and instead remained at 4.3%. UK employment change showed -56K people in jobs, the most significant drop since 2015.
– Brexit talks officially moved onto trade after months of negotiations; however, sterling slipped when Michel Barnier announced that the path ahead in trade talks might be difficult. Moody’s Analytics weighed in on the matter, saying: ‘The risk of further deadlocks in talks is substantial and the uncertainty concerning the terms of UK’s future long-term relationship with the EU will prevail beyond a transition deal until a conclusive final agreement is reached.’
– UK retail sales showed an upswing in November, rising by 1.1% on the month and 1.2% on the year, bolstered by Black Friday Sales.
Brexit is likely to impact the pound this week as Theresa May and her Cabinet begin to outline how Brexit will really look and what concessions may be made along the way. Party disputes have been made public and Boris Johnson has vowed to deliver his vision for a so-called ‘liberal Brexit’ in the week ahead. This version of Brexit would see the UK separate itself from EU laws and prevent the UK from becoming what Johnson refers to as a ‘vassal state’ of Brussels. Ministers are meeting throughout the week and developments could impact GBP.
Concerning economic data, Wednesday will see the Confederation of British Industry’s (CBI) reported sales numbers, followed by consumer confidence data on Thursday and final growth numbers on Friday. Bank of England (BoE) Governor Mark Carney is also due to speak on Wednesday, which could move markets.
EUR – One bank not up to scratch says ECB
– The euro softened slightly last week as European Central Bank (ECB) President Mario Draghi stated that monetary policy would remain accommodative. The central bank hiked its growth and inflation forecasts but maintained that stimulus measures would stay in place for as long as they were justified.
– Eurozone economic sentiment fell from 30.9 to 29.0 in December.
– Eurozone manufacturing and service sectors showed an increase in productivity in December, reaching above forecasts.
Euro news this week has been kicked off by the European Central Bank (ECB) stating that one bank within the Eurozone is not meeting the requirements it sets out. The bank’s annual review of 119 institutions shows that one bank will need to raise money fast, or allow the central bank to intervene.
In economic data, Eurozone consumer confidence will be released on Thursday, followed by German consumer confidence on Friday. A few other low-tier economic releases will be out during the week which may create minimal EUR movement.
USD – One step closer for Trump’s tax reform
– The US dollar fell after the Federal Reserve chose to hike interest rates, but didn’t signal a period of quick rate increases in 2018. Additionally, two policymakers voted to keep interest rates on hold.
– US inflation weakened from 1.8% to 1.7% in November on the year.
– US advance retail sales jumped by 0.8%in the month of November, a surprise after forecasts had expected a smaller 0.3% jump.
The dollar has started the week softer on tax reform concerns. The bill inched closer to its final goal over the weekend, but the dollar declined as investors watched the developments with caution. It’s thought the bill will pass and the threat of a government shutdown has been averted but the dollar is likely to trend softly as investors watch events unfold.
In the last week before Christmas, it’s mainly US data that will dominate markets with a few high-tier pieces coming to light. The week starts off relatively slow with a few scattered medium-tier ecostats, but things could heat up on Thursday when the US gross domestic product (GDP) figure reaches markets. At present, the quarter-on-quarter figure is expected to remain at 3.3% on the year, but any deviation from this could create USD movement. Additionally, Friday could see further fluctuations with the release of the US durable goods orders number – it’s expected to come in at 2.2% in November, following a -0.8% contraction in October.
AUD – Aussie nears six-week high
– The Aussie has started the week rising near to a six-week high after the Australian government forecast the budget deficit would decline more rapidly than first thought.
– In the week ahead the Reserve Bank of Australia (RBA) will be announcing its latest meeting minutes and Westpac will release its leading index.
NZD – Dairy problems ahead?
– The New Zealand dollar rallied by around 2.4% last week to attain a two-week high as reports Adrian Orr would be appointed as Reserve Bank of New Zealand (RBNZ) Governor hit markets.
– The spread of mycoplasma bovis (a bacterial disease found in cattle) could put some pressure on the Kiwi dollar in coming months as more farms are testing positive, with 3,500 animals culled. This news bodes poorly for New Zealand as its most significant export is dairy, and will likely impact its reputation, as well as its farmers.
CAD – Oil prices hit highs
– Canada’s largest commodity, oil, rose to above US$65 per barrel last week, the highest price seen since 2015. The shift higher in oil prices offered the Canadian dollar some strength, as Britain faced the possibility of a winter with fuel interruptions due to a crack in one of its key pipelines.
– Later in the week, the loonie sank against the US dollar following the release of Canadian factory data. Manufacturing sales slipped by 0.4% in October, dragged lower by weaker demand for autos and other transportation equipment.
– The Canadian dollar enjoyed an upswing on Thursday after Bank of Canada (BoC) Governor Stephen Poloz stated that the institution felt the Canadian economy would need to ease its stimulus measures over time.
Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.
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