Brexit Woes Dampen Pound
13th May 2019 Market Update
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?? GBP - Sterling finished lower on Friday, continuing the downtrend played out during the week. Against the euro, the pound lost 1.74% last week and against the dollar 1.05%. Losses for the pound were attributed to the expectation that cross-party Brexit talks are heading towards failure.
Even Friday’s data failed to lift the mood for the pound with industrial and manufacturing production figures year on year overshooting expectations coming in at 1.3% and 2.6% respectively. Preliminary first quarter growth figures came in as expected at 0.5%.
Brexit will continue to be the biggest risk factor for the pound and further losses could be seen on the currency should talks breakdown. Pressure is also being added with Nigel Farage’s Brexit party leading the polls with 34% ahead of the EU elections on 23rd May.
On the data front, March’s job figures on Tuesday will be of focus. The unemployment rate is expected to remain at 3.9% and wage growth is forecasted to drop marginally to 3.4%.
?? EUR - The euro finished Friday marginally higher amid news that the US added new 25% tariffs on US$200bn of Chinese goods. Further escalation of trade war talks between the US and China could well drive further demand for the euro throughout the course of this week.
On the data front , European inflation figures, ZEW survey on economic sentiment and job figures will all be in focus this week.
?? USD - As above, threats of an escalating trade war between US and China will be the likely risk for the US dollar. Fresh tariffs were imposed on China on Friday and the US is already drawing up plans for tariffs to be imposed on another US$300bn of Chinese goods – virtually all of China’s sales to America. US inflation data on Friday also disappointed coming in at 2%, lower than a 2.1% forecast.
Key driver of the dollar looks to continue to be what path the Fed decide to take with interest rate forecasts. Should a combination of US data continue to be weak and US-China trade tension put pressure on the US economy then we would well see pressure on the Fed to cut US interest rates.
Focus this week will be on US retail sales on Wednesday, forecasted to drop to 0.4% and of course any retaliation made by China back on the US.
GBP: Brexit still biggest risk for Pound
EUR: Currency seen as safe haven amid US-China tensions
USD: Dollar weaker on heightened expectations of a rate cut
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