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UK growth falls as Brexit deadline looms

GBP – Election ahead?

The Pound had an interesting week for movement while it awaits further Brexit direction. Developments in New Zealand allowed the Pound to advance against the Aussie and Kiwi Dollars, while weaker economic growth in South Africa allowed it to reach a seven-week high against the Rand. Meanwhile, against the Euro, the Pound hit two-year lows, while reaching 31-month lows against the US Dollar. Sterling sank against the single currency after it was reported Boris Johnson would hold a general election just ‘days after’ the current Brexit deadline of October 31st if he loses a vote of no confidence. Additionally, UK growth contracted for the first time since 2012, putting more pressure on the UK government seeking an immediate break with the EU. UK economists have been warning that economic growth could be damaged without a transition. If UK growth contracts for another quarter, the UK would be in a technical recession. In the week ahead, more indicators of how the British economy is holding up will be released in the guise of UK labour market and inflation data, which could influence the Pound’s movement. 

EUR – Brushing aside concerns

Despite concerns about Eurozone growth after German data last week, the Pound to Euro rate remained close to recent lows. However, the Euro has also exhibited strength against some other currency majors, benefiting from recent US-China trade tensions and rising against the US Dollar. There are a few pieces of economic data out this week that could create Euro exchange rate movement. Tuesday will see the release of the German and Eurozone ZEW Surveys which could provide some direction for the Euro as they gauge sentiment. Wednesday will reveal the second quarter German growth figures, which are expected to fall from 0.7% to 0.1% on the year, with growth for the quarter forecast to contract by -0.1%. Further signs that the Eurozone’s largest economy is slowing down could put pressure on the Euro. 

USD – Battling with China

Chinese exports have been a hot topic in recent weeks with new tariff threats dominating a large portion of risk sentiment. While Trump threatened new fees, the Chinese central bank allowed the Yuan to drop through the key seven level, which spooked markets that were considering whether the trade war might morph into a currency war too. Safe-haven assets have been in demand, with the Japanese Yen strengthening to its strongest level against the US Dollar since January. While politics could continue to move markets, the US Dollar may also be directed by high-tier data out this week, including US inflation numbers and Advance Retail Sales stats.

AUD and NZD – Surprise cut

The New Zealand Dollar took a tumble last week after the Reserve Bank of New Zealand opted to cut interest rates by more than markets had expected. The central bank cut alongside central banks in Thailand and India on account of slowing domestic growth and rising trade tensions between the US and the Oceanic region’s largest trading partner, China. As a result, both Trans-Tasman currencies fell; the Australian Dollar dropped to a 10-year low against the US Dollar. 
Thursday will be one of the most influential events for the Australian Dollar when July labour market data is revealed. Comments from Reserve Bank of Australia Deputy Governor Guy Debelle could also impact the Aussie. It’s a relatively quiet week for New Zealand data, but the latest manufacturing figures for July will be released early in Friday’s Oceanic session. 

CAD – Another thing to consider

Last week data showed that the Canadian unemployment rate rose as employment fell, but wage growth rose at its quickest pace since 2009. With employment growth lacking, it’s likely the Bank of Canada (BoC) has another reason to consider cutting interest rates in the future—something which could negatively impact the Canadian Dollar. It’s a quiet week for Canadian data, with only Thursday’s Existing Home Sales stat of note, meaning the Canadian Dollar could fluctuate on geopolitical developments, commodity prices, and risk sentiment.