Brexit has continued to be the main driving force in currency markets throughout March so far, with the Pound roaring ahead of its peers, despite facing a number of hurdles along the way. Today however, that rally ran out of steam, with GBP/EUR rates dropping to €1.16, as Brexit uncertainty returned to the markets.
In today’s post we’ll take a detailed look at how major currencies have performed so far this month, including GBP, EUR, USD, AUD and CAD.
Pound Sterling GBP Forecast
After a disappointing performance in February, the Pound was back on top in March, propelled higher by improved Brexit sentiment. This upswing in Sterling appeared to be mostly down to a series of Parliamentary Brexit votes in which MPs sought to rule out a no-deal Brexit and back a delay.
However the Pound’s rise was far from smooth, with the UK currency facing considerable volatility over the month as uncertainty continues to cloud the whole process. Today, that uncertainty cause the Pound to fall by around 1% across the board.
Looking ahead, expect Brexit to continue dominating Sterling sentiment for the foreseeable future, with a delay likely to prolong the uncertainty surrounding the whole process for at least another couple of extra months. In this scenario I would expect the Pound to fall further. If however May can get her deal through, Sterling is likely to rise again.
While Brexit will probably side-line UK economic data over the coming month, investors are likely to keep a close eye on domestic GDP for any additional signs that growth may have begun to stall at the start of 2019.
Euro EUR Forecast
The Euro struggled in March, with the single currency facing some notable headwinds due to gloomy economic data and a dovish rate decision from the European Central Bank (ECB). In terms of data, EUR investors were again left wanting as weak PMI figures and slowing industrial data in Germany stoked fears of a stagnating Eurozone.
However it was the ECB’s policy meeting in March that delivered the greatest blow to the Euro this month, with the bank both slashing its growth forecasts for 2019 as well as signalling that interest rates would remain on hold until at least 2020.
The Euro was able to pick itself back up over the past couple of weeks, lifted by renewed hopes that the Eurozone economy will not be disrupted by the UK leaving the EU without a deal. Whether the Euro is able to build on this momentum in the coming month will largely be dependent on an improvement.
US Dollar USD Forecast
The US Dollar was left adrift in late February as Donald Trump’s move to extend the trade deadline with China saw investors reduce their positions in the US currency amid renewed risk appetite. This left USD muted until the first week of March, when a sharp drop in the Euro and a weakened Pound saw investors flock to the Greenback.
However the US Dollar fell back from its best levels fairly quickly, with a worrying slump in domestic payrolls in February and softening safe-haven demand limiting the appeal of USD. Whether the US Dollar is able to bounce back again in the coming month may depend on the direction of US-China trade talks, with a positive outcome likely to further cap demand for the Greenback. This evening sees a rate decision from the FED, which could weaken the Dollar pushing up GBP/USD rates.
Australian Dollar AUD Forecast
Trade in the Australian Dollar has been mixed over the past month, mostly as a result of shifting expectations about a US-China trade deal. While recent signals from talks have been positive, hopes of a deal being signed in the immediate future were knocked by downbeat comments from US Trade Representative Robert Lighthizer.
Domestic data also influenced AUD exchange rates in recent weeks, most notably with the release of a disappointing fourth quarter GDP reading that drove it to new multi-month lows. Moving forward the focus for AUD investors is likely to increasingly be on Australia’s economic data as markets look to gauge whether the Reserve Bank of Australia could cut interest rates this year.
Canadian Dollar CAD Forecast
The Canadian Dollar has had a pretty rough time of it in March so far, being hit by heavy losses right from the offset after Canada’s GDP came up short in the fourth quarter. This was followed by further losses after the Bank of Canada’s latest policy meeting, which saw policymakers warn that the ‘timing of future rate hikes has grown increasingly uncertain’.
While rising oil prices have helped to partially offset ‘Loonie’ losses, CAD still looks to close the month as one of the weakest currency performers.
Looking ahead, the Canadian Dollar may remain on the back foot going forward unless Canadian economic data begins to show some improvement in the weeks to come.
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