Despite an increase in support for GBP last week, there are still underlying concerns surrounding the UK’s Brexit position, with the revised deadline of October 31st fast approaching. The pound has spiked above 1.13 against the EUR and has subsequently found some welcome support around this three-month high against the single currency.
Whilst this increase in value will be welcomed by those clients with an upcoming GBP/EUR exchange to execute, the markets remain clouded in uncertainty when it comes to trying to decipher the UK’s final Brexit position. Thus far, a deal does not seem particularly forthcoming, with both the UK and Europe stressing that any agreement is still some way off.
This negative outlook was countered to some extent by some recent comments made by the European Commission president Jean-Claude Juncker, who said that the EU were prepared to scrap the controversial Irish backstop, as long as the UK could come up with a viable alternative. This immediately gave the markets a boost, bringing with it renewed hope that a deal could ultimately be reached.
However, as so often has been the case in recent months, this positive report was quickly countered, with UK Prime Minster Boris Johnson claiming that a deal far from certain but stressed that the UK would still be leaving one way or another, come October 31st.
With minimal economic data releases for the UK this week, it is likely the focus will remain firmly on any developments in Brexit talks. With the PM set to meet European leaders during this week’s UN summit in New York, those clients holding GBP will be hoping for a significant breakthrough in Brexit talks, in the hope that this will solidify and even enhance Sterling’s recent increase in value.
The euro has seen its value decrease against the majority of its major currency counterparts recently, as fears over a recession within the single bloc continue to gather pace.
These concerns intensified yesterday, following the release of the latest Manufacturing & Services PMI data. Demand for both goods & services inside the Eurozone fell at the fastest pace in more than six years, which may have set further alarm bells ringing inside the single bloc. This is yet just another indication that the Eurozone economy is stalling, with yesterday’s data coming out well below analysts’ predictions and the markets expected result.
The current 12 month economic outlook remains at its lowest in seven years, with trade wars and geopolitical concerns, notably Brexit, cited as reasons for the negative outlook and could heap further pressure on the EUR as we head towards the last quarter of 2019.
One of the main drivers of this downturn seems to be the negative outlook for the economic lynchpins inside the Eurozone bloc, notably Germany. German economic output has fallen for the first time since April 2013, with the rate of this decline the steepest its been since October 2012. With France’s economy also showing notable signs of a major slowdown in the Manufacturing Productions & Services sector, the Eurozone economy seems to be crying for external support, with the ECB set to introduce a fresh monetary stimulus package in order to try and help reverse the current negative trend.
The USD found a level of support against its GBP counterpart during Monday’s trading, moving back towards 1.24 by the close of the European markets.
The Pound had threatened to make its first significant move in months, but the feel-good factor from last week seems to have cooled with the USD finding plenty of support throughout yesterday’s trading. One of the catalysts for this bounce back could be the strong Manufacturing PMI data released on Monday, with the figure of 51 coming in above the markets predicted result of 50.3.
Whilst Service PMI data came slightly under expectation at 50.9, it did not seem to impact investors risk appetite for tithe USD, which had started to come under some pressure as reports of a potential Brexit deal last week continued to gather pace.
With the US economy appearing to stabilise in September following a bout of trade-related weakness towards the end of the summer, the USD has managed to curb any further losses against GBP for the time being.
Despite yesterday’s upturn however, the US economy is not growing at the same pace of the previous quarter. As such any breakthrough in Brexit talks, and/or any negative impact on the US economy due the ongoing trade war with China, could start to put pressure back on the USD.
The AUD has found life tough going of late and despite the on-going uncertainty surrounding Brexit, has been unable to take advantage of investors lack of risk appetite in the pound for the most part.
Sterling hasn’t yet made any further inroads this week, with the AUD finding support around the 1.84 level during Monday’s trading. However, with the outlook for the Australian economy looking relatively bleak at present, the pound has found plenty of support in recent weeks.
Economic data releases in Australia continue to be uninspiring. Unemployment figures haven risen to 5.3% in August from 5% at the beginning of the year, with the latest set of Gross Domestic Product (GDP) figures showing slow growth and a stagnating economy.
Looking ahead and with growth forecasts cut once again by the Reserve Bank of Australia (RBA) at their last policy meeting and concerns over a slowdown in global trade and China’s demand for Australia’s raw materials, the Australian economy and AUD could be for a tough last quarter of 2019.
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