Spanish and Dutch Ministers Back Soft Brexit Deal, Pound (GBP) Exchange Rates Soar
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate plummeted on Friday as markets responded to reports that Spanish and Dutch finance ministers have agreed to work together to push for a ‘soft’ Brexit deal – an outcome that would leave Britain’s relationship with the EU after the exit as in-tact as possible.
Bloomberg has reported that two finance ministers intend on pushing this agenda – a break from the EU’s insistence that a ‘bespoke’ withdrawal deal is not possible.
Officials from both the Dutch finance ministry and the Spanish economy ministry have denied assertions that they are breaking rank with the EU27, however, underlining their ongoing support for EU Chief Negotiator Michel Barnier.
Their approach is reportedly to focus on ‘the importance of UK ties for both countries’ whilst also ‘agreeing to keep track of this common interest but offering full support to Michel Barnier’s negotiating efforts’.
This does not necessarily mean a breakthrough in negotiations, however, with analysts like Jordan Rochester at Nomura pointing out that ‘There will also be member states pushing the other way’.
Nonetheless, the news quickly rocketed the Pound to trade over 1% higher against the Australian Dollar as the trading week drew to a close.
US Core Inflation Grows, Australian Dollar (AUD) Exchange Rates Struggle
The Australian Dollar (AUD) has enjoyed a prosperous week for the most part, riding the swell in commodity prices and supported by recent predictions that the Reserve Bank of Australia (RBA) might move for a rate hike in mid-2018.
Its upward potential may be limited in light of the recent run of US ecostats, however, with US core inflation accelerating.
Core consumer prices in the US (a reading that excludes food and energy) increased by 1.8% year-on-year in December, up from the previous period’s 1.7% print and market forecast of 1.7%.
On a monthly basis, core consumer prices similarly rose by 0.3%, up from the previous print of 0.1% and the consensus expectation of 0.2% – with rises recorded in rent, healthcare and autos.
This boded well for the US, though the immediate reaction was minimal for the Australian Dollar.
In other news, China’s import figures for December largely disappointed markets, printing at 4.5% year-on-year, far slower than the previous period’s 17.7% and the market forecast of 13% growth.
This marked the weakest increase in inbound shipments since December 2016, news that does not bode well for Australia (China being the nation’s largest trading partner).
AUD/GBP Exchange Rate Forecast: Volatility Likely on UK Inflation Data
The Australian Dollar Pound Sterling (AUD/GBP) exchange rate could become increasingly volatile next week as markets respond to Australia’s TD securities inflation reading (Monday) and the UK’s consumer price index figures (Tuesday).
If UK consumer price pressures grew in December, it may push the Bank of England (BoE) towards an increasingly hawkish monetary policy outlook for 2018.
Another major influence will be the performance of the US Dollar (USD), as any recovery for the ‘Greenback’ will likely prompt a dip in the Australian Dollar.