Brexit deal optimism boosts Pound, but for how long?

GBP – Boris puts on the charm before Parliament returns

The Pound rallied on Thursday after comments from Germany raised hopes that a Brexit deal could still be made. However, Sterling began to pare back gains on Friday. In politics, Brexiteer Conservatives warned Boris Johnson that the Irish backstop wasn’t the only problem with the Brexit deal, suggesting there would need to be further changes to get their support. Meanwhile, central bankers also gathered at the annual Jackson Hole Symposium with markets putting comments under the microscope to try and predict monetary policy action in coming months. Additionally, Boris Johnson tried to charm other politicians at the G-7 meeting and pessimism over a no-deal scenario eased somewhat, but with Parliament returning from its recess on September 3rd, there could be a bumpy road ahead filled with possible no-confidence votes, backstop talks, and once again the threat of a general election. There are a few key pieces of information out this week, which might influence the Pound, including House Prices, Consumer Confidence, Mortgage Approvals, and Consumer Credit numbers. 

EUR – ECB indicates large stimulus package ahead 

The European Central Bank released its latest meeting minutes last week, which confirmed forecasts for a significant monetary stimulus programme to be introduced in September. It’s expected rate cuts and asset purchases will likely be used, as the central bank commented on their combined effectiveness. Friday will see the release of the Eurozone Unemployment Rate and inflation figures which could be influential for the Euro’s value. Other data throughout the week will give some insight into the German economy, the largest in the currency bloc, and could, therefore, be influential for the Euro exchange rate.

USD – Powell doesn't give much away

Last week, Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium was a highly anticipated event as markets were keen to understand his stance on interest rates, with a number of rate cuts priced in before his statement. US President Donald Trump has been putting increasing pressure on the Fed to cut interest rates, but policymakers have been resistant to Trump’s demands. Powell commented on the deterioration of global growth in recent years, most likely since trade tensions have increased, but didn’t give much indication about where rates could go next. Meanwhile, trade tensions eased after comments from Trump at the G-7 meeting; China and the US agreed to continue trade talks. Thursday could be an interesting day for the Dollar with growth numbers due out. The second quarter annualised reading is expected to show a decline from 2.1% to 1.8%.

AUD and NZD – Rising tensions 'very worrying'  

The Australian Dollar has weakened around 17% since early 2018 and has been less attractive to investors at times of geopolitical uncertainty. Australia has been quick to act on indications of a global slowdown, having dropped rates in both June and July to reach record-lows of 1.0%. Central banks have taken similar actions across the globe in something that looks a lot like a race to the bottom. The Australian Dollar hit a 10-year low as a result, making life much easier for the Reserve Bank of Australia. However, with US President Trump putting pressure on the Federal Reserve to cut rates, the US Dollar could soften and potentially support the Australian Dollar. Last week RBA Chief Philip Lowe also commented on the rising tensions between the US and China, calling them ‘very worrying’ and citing the impact on investment, wages, and economic growth.
 
Meanwhile, the New Zealand Dollar had been hovering close to three-and-a-half-year lows but managed to rebound in Friday’s Oceanic session after comments from the Reserve Bank of New Zealand which suggested further rate cuts might not occur, at least quite yet. There are a few low and medium-tier data points out in the week ahead, but the Aussie and Kiwi could be susceptible to developments in global trade tensions and risk appetite.

CAD – Oil concerns weigh

The Canadian Dollar eased against the US Dollar as the week came to a close, paring back gains made earlier in the week as geopolitical tensions dampened demand and markets waited for US Fed Jerome Powell’s comments. If global trade were to slow, Canada’s oil exportation could be hampered, which may damage the Canadian economy. Friday will likely be a significant day for the Canadian Dollar with the second quarter Canadian growth figures due out.