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Fourth-best G10 performer

GBP

Fourth-best G10 performer

The Pound has been strengthening against other currency majors, and has been trading around 1.0% higher in the last week, following UK courts disallowing Scotland from holding another independence vote, which increased risk sentiment. Sterling is the fourth best performer of the G10 currencies and has attained around three-month highs versus the US Dollar. Last week, Rishi Sunak faced more Tory rebellions on multiple policy fronts while struggling to gain the 'stability and unity' that he promised when he moved into No. 10 Downing Street. With Brexit, the Autumn Statement, and votes for housebuilding all in the spotlight, political developments could continue to create Sterling movement. Meanwhile, Zoopla has said one in ten homes sold since September had had its sale price cut by more than 5.0%. The fall signifies that higher mortgage levels have dampened demand and that the record house price rises we've seen in the last 18 months have been curbed. Some industry experts forecast a 10% decline in house price valuations next year, with bigger gaps forming between asking and sold prices. In the week ahead, UK mortgage data and the Nationwide House Price Index will be released. Bank of England Governor Andrew Baily and other Monetary Policy Committee members will also speak this week. 

EUR

Five-month high

The Euro has been trading just below the $1.05 level versus the US Dollar, a five-month high, as Dollar weakness continues. Bets have increased that the European Central Bank will hike interest rates by more than the 50 basis points markets expect in its December meeting. This follows strong data from Germany and France last week and hawkish comments from ECB policymakers. In the week ahead, ECB President Christine Lagarde will speak, and influential data in the form of labour market and inflation stats will also be released. Any comments from the ECB surrounding rate hikes could influence the Euro, with markets suggesting a 50% chance of a larger hike on the cards. 

USD

Turning dovish

Last week, the Fed's meeting minutes were in focus, with the pace of hikes a hot topic. The minutes were surprisingly dovish, with widespread agreement that the pace of rate hikes needed to be slowed until the effects of the previous increases filter through to the economy—an economy that's expected to be in recession next year. Market expectations on interest rates have also changed, with investors now predicting rates will peak below 5.0% and some suggesting that the Federal Reserve will need to cut rates in early 2023. US manufacturing data also slipped below forecasts last week, which was another sign that inflation may have peaked, and another factor for policymakers to consider when it comes to monetary policy. In the week ahead, Fed Chief Jerome Powell will speak, which could be insightful when it comes to the path of monetary policy. Meanwhile, in terms of data, highly influential inflation stats, and Non-Farm Payrolls figures will be released, which could cause some market movement.  

AUD and NZD

Surprisingly persistent 

The Reserve Bank of New Zealand opted to hike interest rates by 75 basis points last week, offering the Kiwi Dollar a chance to gain against other currency majors. RBNZ Assistant Governor Karen Silk said that the central bank had been surprised by how persistent inflation had been. Meanwhile, Reserve Bank of Australia Governor Philip Lowe has apologised to Australians that are struggling to make mortgage payments following unclear guidance, which suggested mortgage rates may stay lower until 2024. Noting the bank's language failures, Lowe indicated that the bank would change how it communicates with the public. The Australian Dollar recently reached an eight-week high versus the US Dollar, but the Pound managed to climb against both Australian and New Zealand Dollars last week. 

This week, Australian Retail Sales have shown a contraction in October's reading, coming in at -0.2%. Australian Home Loans, inflation, and manufacturing stats will also be out later this week. Meanwhile, New Zealand's Building Permits and ANZ Business Confidence reading will also reach markets. 

CAD

Trudeau steps up counteroffensive

The Pound made substantial gains against the Canadian Dollar last week, as the Canadian currency fell, tracking oil price declines. In politics, Canadian Prime Minister Justin Trudeau's government has been looking to tackle China's influence, by increasing military spending, and creating more trade ties in the Indo-Pacific region. China dominates Canada's trade relationship with Asia, and the moves are hoped to change that while also noting a stricter stance on foreign investment rules. In the week ahead, highly influential Canadian growth data will be released, as well as labour market stats. It's expected on an annualised basis, Q3 growth will come in at 1.5%, following the previous Q2 3.3% reading. Meanwhile, it's thought unemployment levels could increase from 5.2% to 5.3%. Further oil price movements could continue to influence the Loonie.  

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