Euro Weekly – Sterling struggles amidst ongoing Brexit uncertainty.

Brexit once again cast its shadow over sterling, which dropped midweek following news of an apparent shift in the government’s approach to the transition period. Both the prime minister and the chancellor stated that any agreement for transition will be part of a final deal, which means another year of uncertainty ahead for British business. The pound recovered somewhat on the announcement of GDP figures showing a growth of 0.4% in the third quarter; more than the 0.3% predicted. Its net gains on the day averaged 1.2% and included half a euro cent and one and a third US cents. It is not only the increase in GDP, but also the fact that this may indicate a change to interest rates may be on the horizon – all eyes will be on the Monetary Policy Committee for their announcement next week.

The euro had a largely positive week; ecostats from Europe beat expectations, although Germany fell short of forecast numbers. However, despite this, IFO’s measures of German business confidence came in better than expected, as did Italian industrial sales and Swiss business confidence. This, together with uncertainty elsewhere, kept the euro within the top tier of the leader board this week.

The US also beat expectations in the provisional purchase managers’ index readings, but elsewhere the news was not so good for the greenback. Despite a higher than predicted 2.2% monthly rise in US durable goods orders, the dollar fell, perhaps due not to the statistics but the political environment with Republican Senators Flake and Corker publicly criticising president Trump and calling the tax cuts that had boosted the dollar at the beginning of the week into question.

The Bank of Canada acted as suspected towards the end of the week and left its benchmark interest rate unchanged at 1%. The accompanying statement struck a note of caution that worried investors, however, and the Canadian dollar lost three cents on Thursday.

The inflation data for Australia caused some problems for the Australian dollar this week. Prices had not gone up by as much as expected in the third quarter so the currency was marked down. It is lower by an average of -0.9% on the day against the other dozen most actively-traded currencies. Investors feel this makes even the slim chance of an interest rate rise less likely and the currency fell as a result.

As the new Prime Minister Jacinda Ardern took office this week, the New Zealand dollar was the victim of political uncertainty. The new coalition of the Labour and Green parties together with New Zealand First is entirely untested and the market has not reacted well to the change. Time will tell whether Ardern can manage a stable coalition and bring the governing parties together, but until the market is likely to remain wary of the new order.

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