New 10-month highs for GBP/USD, pound gains on NZD, CAD

Chancellor Philip Hammond seems to have softened his position on cutting corporation tax post-Brexit in order to poach companies from the European Union. This could have positive implications for the negotiations, which kept the pound on the rise yesterday.

GBP/EUR has opened the day up 0.2% at €1.1182, while GBP/USD has also advanced, rising to US$1.3216. GBP/AUD is up to AU$1.6526 and GBP/NZD has climbed to NZ$1.7633. GBP/CAD rallied yesterday but is stuck around opening levels of C$1.6496 as the Canadian Dollar derives support from the gains in oil prices.

It’s time for the next run of UK PMIs today. Find out why holding the current growth levels may not be good enough for the manufacturing index…

What’s been happening?

There were many reasons for the pound to fall yesterday, but sterling instead notched up some notable gains versus its major peers.

The Cabinet remained divided on the shape Britain’s final deal with the EU would take at the end of Brexit negotiations, with Philip Hammond recently claiming that freedom of movement was likely to continue during a transitional period and a Downing Street spokesman saying this wasn’t the case.

However, the Chancellor did state yesterday that the UK did not have plans to drastically cut corporation taxes in an attempt to undermine EU member states and become something of a haven for big businesses.

Hammond had previously threatened this, so his softening stance suggests a more amicable approach that might help warm the disposition of EU officials towards the UK as negotiations continue.

Even though the euro was on strong form, following the latest figures that showed the Eurozone unemployment rate was at an eight-year low of 9.1% and core consumer price growth beat forecasts to hit 1.2%, GBP/EUR was able to make gains.

GBP/USD rose notably, as markets continued to sell the US dollar on the fear that it was overvalued, given that it has seen months of appreciation on expectations of another interest rate hike from the Fed and economic stimulus from President Donald Trump; both of which seem increasingly unlikely.

What's coming up?

The UK’s latest manufacturing PMI will be released today. Recent GDP data showed that the industrial sector contracted in the second quarter, so markets will be looking for an uptick in the survey results if hopes of a stronger third quarter are to remain alight.

Eurozone GDP figures for the second quarter are expected to remain level on the quarter, with the currency bloc registering expansion of 0.6%. This is a fairly positive result, although economists would likely to see the pace of recovery pick up further.

The US will release its important personal consumption expenditure figures and the ISM manufacturing index. Strong results here would boost the odds of a rate hike from the Federal Reserve, thereby undermining GBP/USD, but potentially boosting GBP/EUR.

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.