The threat of a potential global trade war has provoked significant volatility on the currency markets, although the US Dollar has failed to particularly benefit from the Trump administration’s increased protectionism. In today’s post we’ll take a detailed look at some major currencies including Sterling, Euro, USD, CAD and AUD. If you are looking for the best exchange rates and would like a free quote, click here.
December’s UK labour market data failed to offer any particular encouragement to the Pound, with the unemployment rate showing a surprise increase to 4.4%. This helped to overshadow a better-than-expected wage growth figure, keeping investors from betting too heavily on the prospect of the Bank of England (BoE) raising interest rates again sooner rather than later.
An unexpected downward revision to the fourth quarter UK gross domestic product put the Pound under further pressure, underlining worries over the domestic outlook. With the UK and EU still looking to be largely at odds over various key issues related to Brexit, including the Irish border, GBP exchange rates struggled to find any significant headway. Unless there are signs of progress in the next round of negotiations, beginning next week, the Pound is unlikely to see any particular uptick in demand.
If February’s UK consumer price index fails to fall back towards the BoE’s 2% target this could provoke some volatility for GBP exchange rates. While weaker inflation would be good news for domestic consumers this could still dent the Pound, as above-target price pressures would give the BoE incentive to raise interest rates further. Get a quote to convert GBP.
A surprise shift towards populism in Italy’s latest election spooked the Euro, even as the German political situation finally stabilised with the formation of a coalition government. Underwhelming German and Eurozone inflation data encouraged the European Central Bank (ECB) to maintain a generally cautious view on monetary policy, meanwhile.
Although the ECB chose to drop its explicit easing bias from its March policy statement this failed to boost EUR exchange rates for long. ECB President Mario Draghi was quick to talk down the single currency, assuring investors that the change in language was a backward-looking alteration rather than a signal of hawkish intent.
If signs continue to point towards weaker inflationary pressure within the currency union this should keep the Euro under a degree of pressure in the coming weeks. Any weakening of domestic growth could also weigh on EUR exchange rates, especially if fears of a trade war with the US continue to heat up. Get a quote to buy or sell Euros.
As the Trump administration shifted into a more protectionist mind-set, announcing steep tariffs on steel and aluminium, this gave markets some cause for concern. Although risk aversion picked up in the wake of the announcement this failed to particularly benefit the US Dollar, which was dented by fears over the implications this policy has for the US economy.
Steadying US inflation figures and weaker-than-expected wage growth undermined bets that the Federal Reserve will raise interest rates as many as four times over the course of 2018. With the domestic labour market showing greater slack than previously thought there appears to be less cause for the Fed to tighten monetary policy aggressively.
As the Fed is still widely expected to hike interest rates at its March meeting the impact of the move is likely to be rather limited, having already been largely priced into USD exchange rates. Political concerns could also limit the upside potential of the US Dollar in the coming weeks, with a continued push towards protectionism unlikely to encourage investors. Get a quote to buy or sell USD.
Unsurprisingly, the Reserve Bank of Australia (RBA) maintained a rather neutral stance on monetary policy at its latest policy meeting. Even so, policymakers adopted a slightly more positive outlook on domestic wage growth, helping to encourage AUD exchange rates.
As the next interest rate move is still more likely to be up than down this downside potential of the Australian Dollar was somewhat limited. While the fourth quarter Australian gross domestic product fell short of forecast this failed to drive AUD exchange rates any lower.
As Australia was quickly granted an exemption from new US tariffs on steel and aluminium this offered the Australian Dollar a rallying point, even though concerns over the global trade outlook remain. However, if the unemployment rate is found to have bounced back in February the Australian Dollar could be vulnerable to fresh losses. Get a quote to buy or sell AUD.
Stronger-than-expected Canadian inflation data offered support to the Canadian Dollar, reversing December’s -0.4% contraction as prices accelerated 0.7% on the month. This improvement naturally encouraged hopes that the Bank of Canada (BOC) could return to a tightening bias in the coming months.
Trade concerns increasingly weighed on CAD exchange rates, however, as the Canadian economy would suffer severely in the face of a more protectionist US. Worries over oil also limited the appeal of the Canadian Dollar, with Saudi Arabia and Iran seeming increasingly at odds over the desirable price level.
If the OPEC production-limiting agreement breaks down this could put significant pressure on CAD exchange rates, which remain sensitive to the outlook of the oil market. Uncertainty over the future of NAFTA may also keep the Canadian Dollar on a softer footing, as the trade agreement still looks to be at risk of potential collapse. Get a quote to buy or sell CAD.