A bumpy ride
The pound had a relatively quiet day yesterday, with no high-profile government resignations, or myopic outbursts, allowing traders to collectively avert their eyes from the bumpy Brexit process that has transfixed their gaze for months. A certain malaise appears to have been hanging over the pound for a while now, but one shouldn’t forget that the UK isn’t the only economy facing challenges.
The dollar faced a slowdown on Friday after comments from Federal Reserve Vice Chairman Richard Clarida. During an interview with CNBC, Clarida suggested the global economy is haltering, vindicating the Fed’s dovish monetary policy. Those words seemed particularly prescient given the data coming out of the US yesterday, with The National Association of Home Builders’ monthly confidence index dropping to 60 in November, compared with 68 last month.
This figure, the lowest since August 2015, led to the dollar index trading slightly lower at 96.18 this morning, down from as high as 97.34 as recently as Thursday. With the FED indicating that rate hikes will slow, and the benefits from the tax cuts reaching their natural conclusion, some fear that USD will face significant price corrections over the coming months.
A distracted Europe
GBP/EUR has remained stable for the past few days, although there is the scope for volatility after some high profile speeches scheduled by both Deutsche Bundesbank President Dr Jens Weidmann, and the Inflation Report Hearings featuring BOE Governor Mark Carney and several MPC members, who will testify on both inflation and the overall economic outlook.
Deutsche Bundesbank President Jens Weidmann is one of the most influential members of the European Central Bank, so one can expect traders to be hanging on his every word. With Italy defying the EU on public spending, populist movements growing around Europe, debt far higher than EU aims and (of course) Brexit, Weidmann’s speech may overrun.
The European Commission is set to respond to the Italian budget on Wednesday for the second time, with Italy standing firm with regards increasing public spending and reducing the pension age in open defiance of EU rules. Should the EU show even a modicum of weakness with how it reacts to Italy, expect howls of ‘unfairness’ from Brexiteers in this country, and further GBP/EUR volatility.
Reliant on others
AUD is another currency that is extremely reliant on others to provide context to its own value at present. Whilst seeming easing of tensions between the US and China with regards their trade spat had led to a gentle rising of the AUD, it is being alleged that all wasn’t sweetness and light between the two at the Pacific Cooperation Summit (APEC) this weekend.
After a 3% drop against the AUD between the 14th of this month and the 16th, GBP has seen a modest increase in light of this new information.
The Reserve Bank Governor Philip Lowe in a speech earlier today, declared that five years of unprecedented low growth is threatening societal cohesion. This broadside against the Australian economy and banks who he declared have, “dented the community’s trust,” has had the unsurprising effect of weakening the AUD, with the tremors still being felt at the time of this report.