Daily Brief

Daily Brief

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Uncertainty across the market

Blowin’ in the wind

The recent tailwind that has benefited the pound has turned into a headwind as the latest opinion polls show a narrowing of the gap between the Conservatives and the Labour Party. Sterling lost ground to all its major rivals as the latest polls reflected a change from those over the weekend which suggested a comfortable win for the incumbents. On Monday, the pound gained 0.5% against the US dollar, but this dropped to 0.2% after the polling results and sterling also weakened 0.2% against the euro yesterday. The markets appear to favour a win for the Conservatives, but Adam Cole, chief currency strategist at Royal Bank of Canada, suggested that analysts have been “somewhat complacent” when pricing in political risk to sterling and that sterling may be heading for choppy waters. 

What this means for the pound in the coming days and weeks is difficult to predict. A poll from YouGov released last night appeared to confirm other polls suggesting the Conservative lead was diminishing and that there was a drop in support for the Liberal Democrats from 16% to 13%. Since 15th November, the gap has narrowed from a comfortable 17 point lead for the Conservatives to 11 points; this suggests that momentum may reside with the Labour Party, but that momentum is unlikely to be extended to the pound. It may be that sterling faces further volatility as the market reassesses prior assumptions and reacts to further polling results and campaign developments. 

Digital currency for Europe 

A board member for the ECB spoke yesterday about the ECB’s current considerations over the possibility of a central bank digital currency (CBDC). Benoît Cœuré, executive board member of the ECB, claimed that a CBDC could “ensure that citizens remain able to use central bank money even if electronic payments become even more popular”. He acknowledged the risks of digital currency, as shown in the recent plummet of Bitcoin, but suggested that high standards could mitigate many of the risks relating to money laundering which is often at the root of Bitcoin’s challenges. 

The news follows suggestions from an official at the Central Bank of France that blockchain technology could deliver improvements to the financial system. The euro is currently holding steady as political uncertainty elsewhere increases market volatility and it appears the ECB intends to hold their course and look at ways to move forward. 

Low consumer confidence gives little reason to be thankful

As the US heads into the Thanksgiving break, results showing that US consumer confidence fell in November for the fourth consecutive month cast a shadow over the greenback in a relatively quiet week. The results suggested that households are feeling the pinch amid the uncertainty of the ongoing trade war and global slowdown. The Conference Board index of consumer confidence declined to 125.5 in November, from 126.1 in October, against a forecast rise to 126.8.

As the US heads into a long weekend, the US President stated earlier in the week that the US and China were in the “final throes” of reaching an agreement but no date has been set for when these might be revealed, which causes some uncertainty. Just before the break, there is a slew of ecostats including GDP, PCE price index data and the Chicago PMI. Whether or not the market chooses to respond may depend not only on the nature of the results but also whether matters elsewhere take precedence. 

AUD holds steady as NZD stalls

RBA Governor Philip Lowe’s dismissal of the prospect of quantitative easing (QE) gave the Australian dollar a lift yesterday, although the optimism was tempered by fears of further rate cuts to come in 2020. The Aussie welcomed the comments from Gov. Lowe at the Annual Australian Business Economists Dinner in Sydney as he stated that QE was "not on our agenda at this point in time" and that "negative interest rates in Australia are extraordinarily unlikely." The Australian dollar made some short term gains, but as the implications of the statement sank in and the market considered that further cuts in 2020 were still a possibility, the rise was kept in check.

The Aussie did perform better than its Kiwi cousin, however; the New Zealand dollar remains weighed down by the uncertainty over the US-China war and the positive indications were not enough to give the currency a boost. The New Zealand dollar is marooned on the uncertainty – there is limited optimism over the US-China situation as the market awaits a definitive deal and meanwhile US Fed Chair ruled out further rate cuts in America for the near future, which meant that the market saw little reason to be cheerful for the New Zealand dollar. Analysts have priced in a 24% chance that the Reserve Bank of New Zealand will cut its cash rate at the next review on 12th February 2020, and this contrasts with the possibility that the RBA will also cut rates, currently placed at 66% likely. 

GBP: Latest polls create headwinds

GBP: Latest polls create headwinds

USD: Consumer confidence dips further

USD: Consumer confidence dips further

AUD: Ruling out QE good news for the Aussie

AUD: Ruling out QE good news for the Aussie

NZD: US-China trade war weighs heavily despite progress

NZD: US-China trade war weighs heavily despite progress

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