Monthly Currency Forecast – Good morning. Today, I’ll provide an overview of how some of the major currencies we trade have fared over the last month. The focus will be on GBP, EUR, USD, AUD and CAD.
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Monthly Currency Forecast – GBP
The mood towards the Pound saw a sharp improvement as the odds of a no-deal Brexit appeared to fall, lifting GBP exchange rates to fresh monthly highs. With Boris Johnson coming under increasing pressure to request an extension to the current October deadline the risk of the UK crashing out of the EU without a deal was seen to diminish.
This followed on the heels of Scottish judges ruling that the prorogation of parliament was unlawful, even though Downing Street refused to recall MPs ahead of a supreme court appeal later this week.
A better-than-expected gross domestic product reading for July also helped to shore up the Pound against its rivals. If August’s UK consumer price index data shows an easing in inflationary pressure, though, GBP exchange rates look likely to return to a weaker footing. As the chart below shows, GBP/EUR has recovered almost 5% in recent months to a 3 month high.
Monthly Currency Forecast – EUR
Although the European Central Bank (ECB) restarted its quantitative easing programme, as widely expected, this was not enough to weigh the Euro down for long. As the accompanying monetary loosening measures proved more limited than initially thought, allowing EUR exchange rates to rebound and recover most of the day’s losses.
While the ECB committed to keeping interest rates at their current lows until inflation picks up investors have their doubts over the effectiveness of further policy action.
With the Eurozone economy continuing to show signs of a manufacturing slowdown support for the single currency remained general weak, though.
Another underwhelming set of Eurozone manufacturing PMIs could weigh heavily on the Euro, as the risk of a potential German recession lingers.
Monthly Currency Forecast – USD
Signs of an easing in US-China trade tensions saw the US Dollar stumble in the face of improved market risk appetite. Support for the safe-haven US Dollar proved limited, even as the rolling back of some tariffs could boost US economic activity.
Evidence of weakening inflationary pressure also put pressure on USD exchange rates, with the Federal Reserve still facing criticism from the White House for not cutting interest rates more aggressively.
Should Fed policymakers signal a greater sense of dovishness at their September policy meeting the US Dollar could see another move lower.
On the other hand, if the Fed delivers its expected interest rate cut with a hawkish bias this may encourage USD exchange rates to rally sharply.
Monthly Currency Forecast – AUD
As the Reserve Bank of Australia (RBA) left interest rates on hold, albeit with a cautious caveat that an ‘extended period of low interest rates’ is needed to support the economy, the Australian Dollar strengthened.
With other major central banks taking an increasingly dovish outlook the RBA’s decision to hold steady gave AUD exchange rates a solid boost across the board. Even so, as the second quarter gross domestic product proved disappointing, seeing the annual growth rate ease from 1.7% to 1.4%, this positive outlook soon soured.
An easing in US-China trade tensions still helped to support the risk-sensitive Australian Dollar, though, as improved trade relations could boost the Australian economy. The release of the RBA’s meeting minutes may provoke additional volatility for AUD exchange rates, especially if the tone of policymakers proves less hawkish than previously thought.
Monthly Currency Forecast – CAD
The Bank of Canada (BOC) continued to defy the global shift towards dovish monetary policy, maintaining a decided neutral stance at its September meeting. This encouraged the Canadian Dollar to make solid gains across the board as interest rates look set to remain at their current level for some time to come.
A solid increase in August’s employment figures added fuel to the CAD exchange rate uptrend, in spite of a surprise dip in wage growth. Although global trade tensions showed signs of easing, though, the Canadian Dollar fell out of favour as an OPEC report suggested that 2020 will see another oil surplus.
If August’s consumer price index data shows an easing in inflationary pressure, however, this could leave the Canadian Dollar vulnerable to a sell-off as the odds of BOC policy action rise.
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