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CURRENCY RESEARCH

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Sterling firmer as Brexit talks continue

Mon 16 September 2019

The week ahead:

  • Euro zone consumer inflation data (Wednesday, 10:00am)
  • Federal Reserve interest rate policy meeting (Wednesday, 7:00pm)
  • Bank of England interest rate policy meeting (Thursday, 12:00pm)

Highlights from last week:

  • Brexit impasse carries on but no-deal fears fade
  • ECB aims to stoke growth with further Quantitative Easing
  • US consumer inflation fails to calm rate cut fears

The week ahead – Markets to monitor Irish border situation

Despite Scottish judges declaring the latest parliament shutdown unlawful and in breach of the constitution, Boris Johnson’s parliamentary suspension remains in place until mid-October. Brexit negotiations will continue to be closely monitored however, with any concessions on the Irish border likely to support sterling. Domestic data will also come thick and fast this week. UK consumer inflation figures will be heard on Wednesday at 9:30am. Retail sales data will follow on Thursday morning at 9:30am, whilst the Bank of England’s latest policy meeting is scheduled on Thursday at 12:00pm.

With US/China trade talks not set to resume until next month, spotlights turn to the health of the US economy. Releases include industrial production figures (Tuesday, 2:15pm) and building permits data (Wednesday, 1:30pm). The Federal Reserve’s latest policy meeting will then be keenly watched for any further interest rate cuts on Wednesday at 7:00pm.

Key economic highlights for the euro zone calendar this week will include construction output data and consumer inflation data on Wednesday at 10:00am. Consumer confidence figures will conclude the euro’s week on Friday at 3:00pm.

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Canadian consumer inflation data (Wednesday, 1:30pm)

New Zealand Gross Domestic Product data (Wednesday, 11:45pm)

Australian unemployment data (Thursday, 2:30am)

Bank of Japan interest rate policy meeting (Thursday, 4.00am)

Last week recap – Parliament suspended but Brexit talks continue

Sterling hovered at month-highs versus both the US dollar and euro last week as sentiment surrounding a potential Brexit deal improved.

Fears of a no-deal Brexit dissipated somewhat after constructive talks between Boris Johnson and Irish prime minister Leo Varadkar over the Irish backstop. In addition, parliament has recently passed a law in order to stop the UK leaving the EU without a deal. Chief Brexit negotiator David Frost continued talks in Brussels with his EU counterparts, however the EU’s chief negotiator Michel Barnier confirmed he is still waiting on any meaningful proposals from the UK.

The UK’s labour market remained in good health between April and July, underpinning some support for the pound. Including bonuses, wages grew at an annual pace of 4%, the highest rate since 2008. The current rate of unemployment came in at 3.8%.

An exchange of £20,000 via our telephone Currency Service would have bought €22,250 on Friday afternoon.

ECB launches stimulus measures and downgrades growth forecasts

The euro was subjected to selling pressure towards the end of last week after the European Central Bank (ECB) signalled it would reintroduce stimulus measures in an attempt to kick start the euro zone’s ailing economy.

During Thursday’s policy meeting the central bank confirmed it will start purchasing €20 billion a month worth of debt starting in November. The rate of interest paid by banks to hold cash at the ECB was also cut to minus 0.5% in efforts to stimulate lending across the zone. President Draghi went on to confirm the measures will be in place for as long as necessary, whilst also downgrading the bank’s economic growth forecasts to 1.1% for 2019 and 1.2% for 2020.

US dollar slides as Fed meeting approaches

Higher core consumer inflation in the US failed to allay fears the Federal Reserve will proceed in cutting interest rates further in its policy meeting this week. Increased costs for healthcare meant core prices advanced 2.4% year-on-year in August, their highest levels in over a year.

Trade tensions between the US and China eased last week after China announced plans to exempt a number of US products from additional tariffs. The exemption will take effect from the 17 September and the gesture, it is hoped, will go some way in lubricating goodwill between the two side and help both business and consumer sentiment. US treasury secretary Mnuchin and trade representative Lighthizer are now scheduled to meet China's vice premier Liu He in October.

A conversion of £20,000 into US dollars via our telephone Currency Service would have purchased $24,684 on Friday afternoon.

Sour consumer confidence dents Australian dollar

Disappointing consumer confidence figures weighed on the Australian dollar as it remained in negative territory versus the pound for much of last week. Figures from Melbourne Institute and Westpac Bank revealed consumer sentiment dipped by 1.7% this month. Weaker business confidence data also added to speculation another interest rate cut from the Reserve Bank of Australia could be imminent.

A conversion of £20,000 into Australian dollars via our telephone Currency Service would have purchased AU$35,916 on Friday afternoon.

Elsewhere, doubts were raised as to whether Norway’s central bank would signal another interest rate rise in its next policy meeting after the country’s rate of inflation slowed unexpectedly during August. Figures revealed annual inflation came in at 2.1%, lower than the Norges Bank’s forecast of 2.3%, putting the Norwegian krone under pressure for much of last week.

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Important information - The Hargreaves Lansdown Currency Service is a trading name of Hargreaves Lansdown Asset Management Ltd, which is a wholly owned subsidiary of Hargreaves Lansdown Plc, One College Square South, Anchor Road, Bristol, BS1 5HL. Company Registered in England & Wales No. 1896481. It is authorised by the Financial Conduct Authority (FCA) as a Payment Institution under the Payment Services Regulations 2017. Our Firm Reference number is 115248. You can look this up on the FCA register website.