Pound weakens as EU Barnier claims no progress made in EU negotiations

UK consumer confidence improved slightly yesterday, but nonetheless remained significantly gloomy.

GBP/EUR is trending at €1.0858 today, while GBP/USD has slid to US$1.2911. GBP/AUD is down to AU$1.6270, while GBP/NZD is holding around NZ$1.8031. GBP/CAD has dropped to C$1.6100.

A key business survey for the UK’s manufacturing sector is due today. It’s important, but read on to see why the pound may not be overly moved by it…

What’s been happening?

UK consumer confidence may have defied expectations to pick up in August, but overall the state of household sentiment was still pretty poor. The outlook on the economy improved one point, but this still left a net balance of -27% who were feeling gloomy; -5 points worse than this time twelve months ago.

Additionally, business confidence had tumbled, with those in consumer-facing industries feeling the most pessimistic as inflation causes households to reign in their spending.

On top of this, the EU’s chief negotiator, Michael Barnier, claimed that no decisive progress had been made during the latest round of Brexit talks, criticising the UK’s approach to the so-called ‘Divorce bill’ the EU is demanding the UK pays before issues such as trade can be negotiated.

GBP/EUR slid lower, despite the markets being anything but warmly disposed towards the euro yesterday. German unemployment and overall Eurozone inflation beat forecasts to rise from 1.3% to 1.5%, but core inflation held at 1.2% as predicted.

There was nothing in the data to provoke a change in outlook regarding the Eurozone economy or trajectory of inflation, so markets had no reason to favour the euro.

Greater losses were recorded for GBP/USD, even though the Federal Reserve’s preferred measure of inflation – the personal consumption expenditure report – weakened to 1.4% as expected. Positive jobless claims figures and talk from President Trump about his continued desire to reform the tax system helped put USD in a good mood.

What's coming up?

The UK’s Markit manufacturing PMI for August is set for release today. The PMIs give a solid indication of the health of the UK economy and August’s results will start to form a picture of whether private sector activity rebounded or weakened during the third quarter of the year. The PMIs have a tendency of being more optimistic than official ‘hard’ data, however, so even a positive result here might not overly boost the pound.

The Eurozone’s data calendar doesn’t appear to be particularly dramatic tomorrow, with only a series of finalised releases concerning manufacturing and GDP. Only a strong deviation from the initial estimates here is likely to cause disruption for the Euro.

Meanwhile, the US will publish its latest non-farm payrolls figure; one of the most key data releases for the interest rate outlook. The pace of hiring is expected to have slowed in August, but remain firm.

We’re here to talk currency whenever you need us, so get in touch if you want to know more about the latest news or how it could impact your currency transfers.

Phil McHugh,
Trading Floor Manager

Phil provides dealing and hedging services whilst also helping to manage Currencies Direct overall market exposure.