Market focus has returned to Brexit today, weakening Pound exchange rates. GBP EUR and GBP USD are also tumbling on weak inflation data.
- Pound exchange rates collapse – GBP EUR and GBP USD register significant losses
- Eurozone banking hopes boost Euro – Bond sell-off could improve EZ bank profitability
- US Dollar unsteady on Trump’s deportation plans – Immigrants have significant economic benefit, study claims
- Pound exchange rates forecast – GBP EUR, GBP USD to remain on a downtrend
The Euro is advancing thanks to market belief that the current bond sell-off may improve the fortunes of European banks, while the US Dollar is mixed after analysis was released of the economic impact of Donald Trump’s plan to immediately deport several million immigrants.
Pound Sterling Edges Higher after UK Retail Sales Charge Higher
UPDATE, 11.13, 17/11/2016; The Pound has been able to firm its advances this morning following the release of UK retail sales figures for October. Month-on-month, sales grew 1.9%, nearly five times above forecast. On the year, sales growth stormed ahead to 7.4%, beating expectations of a rise from 4.2% to 5.3%. Monthly sales excluding fuel grew 2%, instead of accelerating from 0.1% to 0.4%, while yearly sales excluding fuel swelled by 7.6%.
US Dollar Softens ahead of Fed Yellen Testimonial
UPDATE; The US Dollar has softened against the Pound today ahead of a key testimonial from Federal Reserve Chair Janet Yellen. The central bank chief is likely to answer questions on congress regarding Donald Trump’s intended spending measures, as well as her own future leading the Fed. It is therefore likely that the US Dollar will experience strong volatility when her statements are released this afternoon.
GBP EUR, GBP USD Slip after Labour Market Data
UPDATE; The latest UK labour market data has offered a mixed picture. The ILO unemployment rate did fall to the lowest level in 11 years, but this figure reflected the three months ending in September. More recent unemployment claims data for October shows a shock 9.8k rise in jobless claims; nearly five times above forecast. September’s figure was also revealed to be eight times higher than initial estimates of 700. This suggests that the outlook for the labour market is less-than-rosy, undermining the positive ILO figure. Experts have also warned that the number of people who entered work was at a multi-month low, with the three-month employment change figure rising 49,000 – just over half what was forecast.
GBP EUR, GBP USD Exchange Rates On the Rise after Brexit Fears Spark Sell-Off
UPDATE; The Pound is rallying today after yesterday’s strong sell-off. The markets are now awaiting the day’s UK labour market data, although little change is expected; a predicted 2,000-person increase in the number of people claiming out of work benefits isn’t expected to increase the 2.3% claimant count rate.
Pound Exchange Rates Slump after Inflation Unexpectedly Slows
Reports that the government still doesn’t have a plan regarding Brexit set Pound exchange rates on a downtrend this morning. GBP EUR and GBP USD slumped after a memo, allegedly prepared for the Cabinet Office, claimed that ‘despite extended debate among permanent secretaries, no common strategy has emerged.’
According to The Times, the report was prepared under his own initiative by a consultant for the Cabinet Office. The report states that;
‘Every department has developed a ‘bottom-up’ plan of what the impact of Brexit could be – and its plan to cope with the ‘worst case’. Although necessary, this falls considerably short of having a ‘government plan for Brexit’ because it has no prioritisation and no link to the overall negotiation strategy.’
Also undermining GBP EUR and GBP USD exchange rates is the latest consumer price index data. The figures for October have shown that price inflation has actually slowed, ticking lower by ten basis points to 0.9%. Core price growth slowed from 1.5% to 1.2%. This has lessened market hopes of a quick return to pre-referendum level interest rates from the Bank of England (BoE).
As a result, GBP EUR exchange rates are currently down -1.2%, while GBP USD exchange rates are currently down -1%.
Euro Exchange Rates Recovering; Could Global Bond Sell-Off Rescue Eurozone Banking Sector?
The Euro is rising against the Pound and the US Dollar today as markets wonder whether the current bond sell-off could offer a reprieve for the struggling Eurozone banking sector. The current rout on government debt may increase bank profitability in the currency bloc, improving stability and enabling them to lend more; or at least weather the storm of loose European Central Bank (ECB) monetary policy.
A large-scale sell-off in global bonds benefits banks because they hold a lot of bonds and investors selling them off lowers the prices. When the bonds held by banks expire and the face value of the bond is repaid to them, the banks can reinvest this capital in new bonds for cheaper. Falling bond prices pushes the yields higher, meaning banks can get a better return on the new bonds they hold.
This appears to have been enough to soothe the fears of rising Eurozone populism that were depressing the Euro yesterday.
US Dollar Advance Stumbles as Markets Assess Trump’s Mass Deportations Plan
The US Dollar has been driven higher in recent days by market speculation that Trump’s proposed spending policies would drastically boost inflation, leading to tighter US monetary policy. However, other policies are beginning to worry investors; in particular Trump’s pledge to deport several million undocumented immigrants as soon as he comes to power.
According to researchers Ryan Edwards and Francesc Ortega;
‘The economic contribution to U.S. GDP of the current unauthorized workers is substantial. Unauthorized workers may be responsible for 8 to 9 percent of the value-added in agriculture, construction, and leisure and hospitality.’
A report by Edwards and Ortega finds that the approximately 8 million undocumented workers in the US contribute 3% of private sector GDP – the equivalent of US$5 trillion over the course of the next ten years. Texas, a traditionally Republican state in which Trump beat Clinton by a margin of nearly 10%, could see a -US$51 billion decline in output over the next ten years if the President-Elect follows through with his plans.
Analysts had been warning over the past few days that markets were overly focussed on Trump’s positive policies, without considering the impact of his more contentious plans. Although USD GBP remains on the ascent, USD EUR, along with many other ‘Greenback’ pairings, has slid backwards as markets begin to consider other aspects of a Trump presidency.
Pound Exchange Rates Forecast to Continue Slide; Weak Policy Outlook to Weigh on GBP EUR, GBP USD
The UK and Eurozone data for the day has largely been released. The UK inflation figures are likely to continue weighing on the Pound for a while, with downwards pressures exacerbated by the fact investor focus has been dragged back to Brexit. Bets of frozen loose monetary policy from the Bank of England (BoE) will mute Pound exchange rates.
The US Dollar could see a shift in direction from this afternoon’s advance retail sales figures, although if the forecasts are correct, USD trajectories may not be hugely altered by the ten basis point slowdown to 0.5% predicted.
Interbank Pound Exchange Rates
At the time of writing the Pound Euro (GBP EUR) exchange rate was trending in the region of 1.15, while the Euro Pound (EUR GBP) was trading around 0.86.
The Pound US Dollar (GBP USD) exchange rate was trending in the region of 1.24, while the US Dollar Pound (USD GBP) exchange rate was trading around 0.8.
The Euro US Dollar (EUR USD) exchange rate was trending in the region of 1.07, while the US Dollar Euro (USD EUR) exchange rate was trading around 0.92.