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Countdown to Brexit (again)

GBP – Countdown to Brexit

It’s now only 31 days until Brexit, and the Pound tumbled lower at the end of last week as Brexit uncertainty took hold of the market once again. The rising uncertainty of what could happen, along with fresh economic reminders that Brexit is creating trouble for the UK economy, damaged sentiment, leaving Sterling to decline by over 1.5% last week against the US Dollar. However, despite putting in its worst weekly performance since August, the Pound is still more than 1.0% stronger this month, given its almost three-cent rise. Friday’s downturn came as a result of Bank of England comments on interest rates, with suggestions that even if the UK economy avoids a no-deal exit, there still might be scope to lower rates. This week, figures detailing the health of the UK Construction, Services, and Manufacturing sectors will be out which could create some Sterling movement. However, developments in Brexit and British politics are likely to be the main GBP driver.

EUR – Draghi's warning   

The Euro suffered against the US Dollar last week after Eurozone data showed further weakness. European Central Bank Chief Mario Draghi has repeated again that monetary policy needs to be supported by fiscal policy, saying: ‘Monetary policy will continue to do its job but the negative side effects as you move forward are more and more visible.’ Eurozone inflation data will be out in tomorrow’s European session, followed by Eurozone Retail Sales on Thursday, both of which could impact the way the Euro trades.

USD – More trade uncertainty 

The US Dollar has been trading higher after fresh US-China uncertainty caused investors to head for safe-haven assets. Against a basket of other major currencies, the US Dollar reached a more than two-year high earlier in September. ING analysts suggest: ‘Were there better stories overseas, we suspect the Dollar might be a little weaker right now, but there are not (industrial production numbers are still plumbing the depths in many countries) and thus the Dollar is holding its gains.’ There are a number of highly influential data reports out this week, with Friday’s Change in Non-Farm Payrolls and Unemployment Rate numbers expected to create some market movement.

AUD and NZD – Kiwi hits four-year low

Despite reassurances from the Reserve Bank of New Zealand that recent rate cuts have been doing what they’re supposed to, domestic data released last week showed a decline in consumer confidence. This raised speculation that the central bank may need to do more to support the Kiwi and the economy, and the currency softened as a result. This week, the New Zealand Dollar has tumbled to a four-year low against the US Dollar following the revelation that business confidence had taken a hit in September.
This week, one of the main focal points is likely to be the Reserve Bank of Australia’s interest rate decision, especially if an interest rate cut occurs. Market forecasts suggest the central bank will cut rates to reside below 1.0%, despite previous cuts adding fuel to house prices. Since the first of two back-to-back rate cuts in June, house prices in Sydney and Melbourne have climbed by almost 3.5%, while inflation in the last year has risen by only 1.6%.

CAD – Oil and growth in focus

Last week, the Canadian Dollar hit a ten-day high after positive domestic data boosted the currency. Figures from Statistics Canada highlighted a 2.7% rise in average weekly earnings for Canadians in July on the year. This week, there are a number of key ecostats due out for release, including growth data which is expected to show a small decline on the year. Another factor that could impact the Canadian Dollar in the week ahead is the price of oil, Canada’s biggest commodity. Oil prices have been in sharp focus given global tensions and the recent attacks on Saudi oil facilities.