The Dollar is broadly flat in trade weighted terms today. While it has appreciated modestly against the Euro, Sterling and Swiss Franc it is flat against the Aussie and Kiwi Dollars and has weakened slightly versus emerging market currencies.
The GBP/USD cross has once again fallen towards 1.29, caught in the double-pincer of heightened uncertainty about Brexit and a somewhat disappointing UK macro data. While talks between the ruling Conservative Party and the opposition Labour Party are ongoing, there has reportedly been little or no progress. Jeremy Corbyn is pushing for a Brexit deal which would include the UK’s membership of a customs union, in exchange for his
party’s support of Prime Minister May’s draft Withdrawal Agreement. But members of the Conservative Party have voiced their opposition to such a deal on the basis that it would alienate the centre-ground within the party. If Theresa May’s deal cannot get a parliamentary majority, if support for a customs-union type deal is at best lukewarm and if MPs are keen to avoid a no-deal Brexit, it begs the question of where the British government goes from here. As always, uncertainty creates volatility and the currency market has decided on its direction for Sterling which for now is down.
Moreover, UK labour data for March out today were mixed. While the unemployment rate fell further to a multi-decade low of 3.8%, real weekly earnings (seasonally adjusted) fell 0.3% mom to a seven-month low, resulting in measly +0.3% yoy growth. While the labour market is tight, this has not translated into markedly faster real wage growth with workers seemingly
still in a weak bargaining position. This is likely to hold back household consumption and ultimately GDP growth and at the margin reduces the odds of a Bank of England rate hike near-term, irrespective of Brexit’s path.
